It includes examples of approaches and factors to consider when investing scheme assets to fund defined benefits, and follows the TPR’s publication of common principles last year.
The regulator highlighted that it expects trustees to have suitably documented investment arrangements that are appropriate for their scheme’s circumstances, including their level of complexity.
TPR head of investment consultancy, Fred Berry, said: “Good investment governance is essential to all pension schemes, indeed to any institutional investor, and the strategy is one of the most important drivers of a scheme’s ability to meet the objective of paying the promised benefits as they fall due.
"Our guidance states that trustees should focus on areas that have the most impact for meeting their scheme’s objectives, and identify the necessary skills for the board of trustees of their scheme.
The law requires trustees to be familiar with the basic legal principles of pension scheme investment, as well as the provision of their scheme’s governing documents.
The TPR believe a good investment is likely to:
• Involve effective governance, delegation and monitoring
• Form part of an integrated risk management process
• Be consistent with the scheme’s objectives and long-term plans
• Have an overall amount of risk consistent with risk appetite
• Involve risk-taking that is understood and balanced
• Allow for the scheme’s future cash flow and liquidity requirements.
Barnett Waddingham partner, Rod Goodyer, said: “The new investment guidance is a useful resource for trustees and should be applicable to schemes of all sizes.
“The Regulator makes clear what issues should be at the forefront when reviewing strategy – principally around risk, return, investment beliefs and long-term planning.
“We would also agree with the guidance provided around the importance of monitoring investment in terms of how a strategy as a whole is performing and why – rather than simply spending governance time largely on manager performance.”
TPR also stressed the importance of considering operational risks, security of scheme assets, asset transition, and liquidity and collateral management when implementing a strategy, suggesting the use of a monitoring dashboard.
You can read the new guidelines here
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