Challenges with Implementation Statements - The new DWP Guidance
19th January, 2023
It’s been over two years since trustees of schemes, which are subject to the requirement for a Statement of Investment Principles (SIP), have been required to produce an Implementation Statement (IS) to meet pension disclosure requirements. The aim of this has been to encourage trustees to be more engaged in stewardship of the assets they oversee to ensure the policies set out in the SIP are being followed by their investment managers.
The requirement to produce an IS came into force in October 2020 and since then there have been various challenges in producing them.
Many investment managers struggled to cope with the significant demand for information. This included obtaining data on voting statistics and significant votes as well as engagement information. Over time there have been improvements in this information but we are still seeing some fund managers providing generic firm-wide information rather than fund specific data. Whilst this is better than no information at all, it still makes it challenging for a trustee to determine if their policies are being followed for all of their holdings. As investment managers improve their reporting processes, we do hope that more granular information can be obtained from all investment managers and encourage them to do this to help trustees fulfil their obligations.
There was some initial confusion over which date the IS had to be produced by – was it the Scheme year end or the date the accounts needed to be signed by? Some trustees sought legal advice and it was confirmed that the deadline would be the date the scheme accounts were required to be signed. This was only an issue in the first year as future statements were then included as part of the annual accounts.
There was also some uncertainty on which parts of the regulations are a requirement and which ones are considered best practice, as well as who the audience was for the ISs.
The Department of Work and Pensions (DWP) issued new guidance in June 2022 (Reporting on Stewardship and Other Topics through the Statement of Investment Principles and the Implementation Statement: Statutory and Non-Statutory Guidance) following a consultation on stewardship and clarified which sections of the regulations are statutory and non-statutory. The guidance sets out that references to ‘must’ refers to a legislative requirement and has to be complied with otherwise the Pensions Regulator (tPR) can impose sanctions. It also uses ‘should’ in the guidance and this means trustees must comply with the regulation or explain why they haven’t in the IS. References to ‘may’ do not require any explanation and is guidance on best practice.
TPR also confirmed that it is the primary audience for the SIP and IS, and not members. It does clarify that trustees can produce a version of the IS for the “reasonably engaged and informed member” and encourage them to be written in plain English. However, this is not a requirement.
There had been a proposal in the consultation to include a voting reporting template, or a template to report engagement activities, but this was put on hold for the time being.
The guidance has helped to clear up some of the issues on producing an IS, however, it would have been great to see a standard template on engagements to help make data more comparable across different fund managers. The PLSA Vote Reporting Template seems to be the most popular method in which investment managers use to provide voting information and some engagement information. This has helped in providing a standardised approach to voting information, but there is a lack of standardisation across engagements which can make it trickier to collate information as it is provided in different formats by different managers.
I do hope to see some further progress on this from the industry to assist trustees in being able to collect engagement information in a standard way so that it can make the data collection process simpler.