What’s the context?
Statement of investment principles (SIP)
The Occupational Pension Schemes (Investment) Regulations 2005 (the Investment Regulations) introduced new practices in relation to preparing and updating a SIP – a written statement governing decisions about investments for the purposes of an occupational pension scheme.
By October 2019, trustees were required to update or prepare their SIP to set out:
- their policies in relation to financially material considerations – defined to include ESG considerations and climate change – over the appropriate time horizon of the investments and their engagement activities in respect of investments (stewardship), and
- the extent (if at all) to which non-financial matters – generally member views on ethical matters – were taken into account.
Within a year, there were further changes to the Investment Regulations to put in place aspects of the Shareholder Rights Directive II – Directive (EU) 2017/828 (which amended the previous EU Shareholder Rights Directive 2007/36/EC) – in the UK. Consequently, trustees had to make further changes to their SIPs by 1 October 2020 setting out various details in relation to trustees’ arrangements with their asset managers – including alignment between trustee and manager policies. The SIP must also be published on a publicly available website.
Implementation statements
From 1 October 2020, trustees were also required to produce an implementation statement setting out how they acted on policies in the SIP.
The timing and content requirements of the implementation statement are set out in the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (the Disclosure Regulations). These apply to schemes differently depending on their scheme year.
For background on the policy and legislative framework for stewardship, see Stewardship Code and frameworks.
What are my compliance obligations?
SIP obligations
The Pensions Regulator (TPR) states that the purpose of the SIP is to “set out [your] investment strategy, including the investment objectives and investment policies you adopt”.
SIPs and implementation statements must be made available online. This will increase the likelihood of public scrutiny for many schemes. There have been examples of organisations using the evidence in SIPs as part of research and reports.
Trustees should assume that SIPs will be read not just by their members but by other organisations which may seek to hold trustees to account for their actions or inactions.
Tips to help with your SIP:
- Allocate time in a trustees’ or investment sub-committee meeting to consider the trustees’ overall approach. Consider what policies can realistically be adopted based on overall investment strategy, governance budget, and the nature of the scheme’s investments.
- Where ESG matters and stewardship are delegated, ensure manager policies and mandates are consistent with the trustee policies stated in your SIP. In the context of segregated mandates, consider whether to request any change to investment objectives, restrictions and reporting requirements to reflect policies stated in the SIP.
- Consider whether a standalone investment policy may be a better approach than seeking to put everything in the SIP. This can be a helpful tool to explain the trustees’ approach to members in a more accessible format. It can also help keep your SIP in a shorter form.
- Write the SIP with the implementation statement in mind. For relevant schemes – broadly, schemes providing DC benefits other than Additional Voluntary Contributions – all policies under the SIP are in scope for the implementation statement. Trustees should take care not to include general statements in their SIPs that may be hard to report against.
Implementation statement obligations
TPR explains that the implementation statement must show how trustees have followed and acted on the stated investment policies in their SIP. The implementation statement must be made available online free of charge and included in the scheme’s annual report and accounts.
The requirements in relation to the content of the annual report and accounts are included in the Disclosure Regulations.
For pure DB schemes: the content is generally limited to a report on the engagement activities and votes exercised during the year.
For DC schemes (and schemes that provide both DB and DC benefits): the content requirements are more extensive. Trustees will need to report generally on the implementation of their ESG and other policies across the scheme – including in relation to any DC default fund – as well as their engagement activities and voting.
The requirements do not apply to schemes with fewer than 100 members.
Required implementation statement content: DB-only schemes and relevant DC and hybrid schemes
| Required content | DB-only schemes | Relevant schemes (DC and hybrid) |
|---|---|---|
| Set out how, and the extent to which, the scheme’s policies on stewardship from the SIP have been followed during the scheme year | Yes | Yes |
| Set out how, and the extent to which, the SIP has been followed during the scheme year | No | Yes |
| Describe any formal review of the SIP (as required by the Investment Regulations) undertaken during the year, and any other review of how the SIP has been met | No | Yes |
| Explain any change made to the SIP during the scheme year and the reason for the change | No | Yes |
| Where no formal review was undertaken during the scheme year, provide the date of the last review | No | Yes |
| Describe the voting behaviour by, or on behalf of, the trustees (including the most significant votes cast by the trustees or on their behalf) during the scheme year, stating any use of the services of a proxy voter | Yes | Yes |
Tips to help with your implementation statement:
- TPR guidance Investment governance in DC schemes (August 2024). This explains that the statement’s purpose is to help ensure that “action follows intent” as far as possible. The process of considering the content of the statement is intended to help “focus trustees’ minds on how well their investment policies and stewardship arrangements are delivering against their scheme’s agreed investment principles”.
- Guidance published by Pensions UK. This includes some high-level general principles and tips for responsible investment communication. This guidance is essential for trustees drafting their statements for the first time.
- Pensions UK template and guidance for vote reporting. The FCA requires asset managers to produce a general description of their voting and engagement behaviour – likely to happen at a firmwide level. However, trustee boards need to report their voting behaviour at a scheme level, which will require mandate-level or fund-level information. Pensions UK has produced a vote reporting template and accompanying guidance to help trustees and asset managers disclose how they enact their shareholder voting rights. The publication of the voting template is intended to promote consistent and uniform reporting of information.
- Consider keeping a record of investment policy implementation and actions as you go along. Keeping a log of key events such as asset manager reviews through the year will make it easier to prepare the statement when due. The Pensions UK guide provides examples of key actions or decisions, taken over the course of the scheme year, which trustees might choose to report.
In June 2022, the Department for Work & Pensions (DWP) published guidance for the content of SIPs and implementation statements.
The DWP guidance contains:
- statutory guidance – generally on implementation statement content, and
- non-statutory guidance – generally in relation to SIP content, focusing particularly on stewardship, voting and engagement.
A key theme in relation to implementation statement content is the link between a scheme’s stewardship priorities and the voting behaviour of their appointed managers. Further guidance describes how trustees should report a scheme’s “most significant votes”.
We discussed this in our Finance & investment briefing from December 2022.
Statutory guidance on implementation statement content: most significant votes
- Which stewardship priority the vote was linked to
- The company’s name (unless there are particular sensitivities around disclosing this) and date of the vote(s)
- Approximate size of the scheme’s holding as at the date of the vote
- Summary of the resolution
- How the trustee / asset manager / service provider voted
- If the vote was against management, was the intention communicated to the company ahead of the vote
- Rationale for the voting decision
- Outcome of the vote
- Whether the trustee / asset manager / service provider intends to escalate stewardship efforts
For details on how trustees approach voting and engagement in practice, see Voting and engagement – the trustee role
