What’s the context?

Pension scheme trustees are subject to various trusts law and fiduciary duties that they owe to their scheme beneficiaries.

These fiduciary duties do not derive from a single source, rather they have evolved from case law, overlaid by certain statutory provisions, including the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005 (the Investment Regulations).

The basic legal principles that comprise trustees’ fiduciary duties have remained stable over time, but more and more questions are being asked as to how they should be applied in the context of modern ESG issues.

Fiduciary duties remain the cornerstone of trustees’ responsibilities when it comes to making investment decisions:

Trustees are required to act in the best financial interests of scheme beneficiaries, balancing investment returns with the need to manage risks.

Historically, fiduciary duties were often interpreted narrowly, focusing primarily on generating “returns”. However, evolving market standards and regulatory expectations now take a broader view of what factors may be relevant when considering beneficiaries’ best financial interests.

In July 2014, the Law Commission published its report on Fiduciary duties of investment intermediaries (the Law Commission Report). Following the publication of the Kay Review of UK equity markets and long-term decision making, the Department for Business, Innovation & Skills and the Department for Work & Pensions (DWP) asked the Law Commission to investigate how the law of fiduciary duties applied to investment intermediaries and to evaluate whether the law works in the interests of end investors.

The Law Commission chose the pensions landscape in which to conduct its investigations.

The Law Commission Report concluded that in pensions, the primary purpose of the investment power is to provide members with retirement and other benefits. Therefore, the principal aim of the investment strategy is “to secure the best realistic return over the long-term, given the need to control for risks”.

It is not uncommon for the duties to be mischaracterised, and it is still not unusual to hear people refer to a trustee’s duty to “maximise returns”, a notion stemming from the 1984 case of Cowan v Scargill.

But context is crucial, and the circumstances in which the trustees in that case were exercising their investment powers must also be taken into account. This is not to suggest that Cowan v Scargill is bad law, but rather that its judgment must be understood in its proper context.

Cowan v Scargill remains a valid authority on the legal principle that trustees must exercise their investment powers for their proper purposes – specifically, to provide pensions for members and not for political reasons. However, it’s a misinterpretation to see the case as imposing an absolute duty to maximise returns.

This will be clear to anyone familiar with how trustees of DB pension schemes often use hedging instruments, bulk annuities and liability-driven investment strategies. Are these investments made for the purpose of “maximising returns”? No, but they do fulfil the goal of ensuring that members’ pensions can be paid.

What are the latest developments?

  • February 2024

    The Financial Markets Law Committee (FMLC) published its paper on Pension Fund Trustees and Fiduciary Duties – Decision-making in the context of Sustainability and the subject of Climate Change (the FMLC Paper). The FMLC Paper is intended to be used by trustees to help in their conversations with advisers. It sets out a general explanation of the legal position, including fiduciary duty and decision-making responsibility, and discusses how trustees can “better succeed in taking decisions in keeping with their fiduciary duties”. However, while the FMLC Paper has been widely discussed, neither it, nor the Law Commission Report, is a definitive statement of the law.

  • February 2024

    The parliamentary Work and Pensions Committee held oral and written evidence sessions on fiduciary duties. A significant part of this discussion focused on whether a “legal change to the definition of fiduciary duty” is necessary. A variety of responses to this question were put forward by industry and civil society groups, including what such a change might look like in reality.

  • March 2025

    The NatWest Cushon DC master trust announced it has obtained a legal opinion from Eversheds Sutherland covering, amongst other things, how considerations of members’ standards of living and UK growth might be accommodated within the fiduciary duty.

  • October 2025

    An amendment to the Pension Schemes Bill (PSB) was introduced. It aimed to clarify and expand the scope of trustees’ fiduciary duties by explicitly permitting consideration of “system-level” risks and opportunities, such as environmental and social factors that cannot be fully managed through diversification alone. The intention was to empower trustees to invest more responsibly without diluting the existing duty to act in members’ best financial interests.

  • December 2025

    The Pensions Minister, Torsten Bell, in acknowledgement of the tabled amendment to the PSB, confirmed that the Government would develop statutory guidance for pension schemes. To enable this, it would “bring forward legislation that will allow the Government to develop statutory guidance for the trust-based private pensions sector”.

  • March 2026

    The House of Lords voted against the proposed amendment to the PSB that would have required statutory guidance to be issued on pension scheme trustee investment duties.

  • April 2026

    The Pensions Minister, Torsten Bell, stated that “The Government will proceed on work to draft that guidance. The technical working group is well under way and is doing good work to provide clarity to the industry. We will come forward with proposals to put the guidance on a statutory footing in the months and years ahead.”