Get ready for more regulation

4th November, 2019

  • With many pension scheme trustees having set ESG policies, which came into effect last month (October 2019), there is further regulation to prepare for.

    On 6 June 2019, the Government published regulation for pension schemes, which is intended to implement the aspects of Shareholder Rights Directive II, relating to workplace pension scheme stewardship and governance. The purpose of this regulation (The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019) is:

    • to improve transparency of how trustees engage with asset managers, and
    • allow members to understand how funds are being managed and invested, whilst trying to encourage schemes to take a long-term approach to investment.

    What the regulations cover

    Trustees will need to set out their policy in relation to the scheme’s arrangement with any asset manager. The policy will need to highlight the following matters or explain the reasons why they have been omitted:

    • how the arrangement incentivises the asset manager to align its investment strategy and decisions with the trustees’ policies;
    • how that arrangement incentivises the asset manager to make decisions based on assessments about medium to long-term financial and non-financial performance of an issuer of debt or equity, and to engage with issuers of debt or equity to improve their performance in the medium to long-term;
    • how the method (and time horizon) of the evaluation of the asset manager’s performance and the remuneration for asset management services are in line with the trustees’ policies;
    • how the trustees monitor portfolio turnover costs incurred by the asset manager, and how they define and monitor targeted portfolio turnover or turnover range; and
    • the duration of the arrangement with the asset manager.

    Trustees will need to provide further information on stewardship, such as how they monitor the investee company on capital structure and how they manage actual and potential conflicts of interest in relation to their engagement with companies.

    These changes need to be in place by 1 October 2020.

    Disclosure requirements

    For defined benefit (‘DB’) schemes that need to publish their SIP on a public website by 1 October 2020, there are further requirement for 2021.

    Trustees must produce a statement which:

    • sets out how, and the extent to which, the policy required in relation to exercising voting rights has been followed during the year; and
    • describes the voting behaviour by or on behalf of the trustees, including the most significant votes cast by trustees (or on their behalf) during the year and state any use of the services of a proxy voter.

    This statement will need to be produced and published on a public website by 1 October 2021. It will also need to be included in the trustee’s annual accounts.

    The rationale behind these additional regulations is to hopefully provide members with greater transparency, encourage trustees to engage further with asset managers and to take a longer-term view on their investment strategies.  However, the costs for compliance continues to rise. It is hoped that pragmatic solutions can be achieved so members receive the best possible benefit from these changes.


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    • Published bySusan McFarlane

      Susan leads the marketing function for Dalriada Trustees Limited, and our sister company, Spence & Partners.  The marketing team handles all promotional activity for the companies including business development, marketing, events and PR. Susan joined the business in January 2013, having...

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