The pensions industry has broadly welcomed the draft guidance published this week, aiming to give “clarity” to trustees’ fiduciary duty.
The guidance, which is now open to consultation until 28 January 2027, does not add to existing law or change the nature of fiduciary duty, but is designed to clear up uncertainties about how to take into account different financially material factors.
In his introduction to the consultation, Sir Robin Knowles, who chaired both the Technical Working Group and the Advisory Group, said: “Fiduciary duty is there as a constant in the law. But as circumstances and experience develop, so too the way in which fiduciary and related duties work is further illuminated. By understanding fiduciary duty in today’s circumstances, we can ensure it continues to protect and enable.”
Pensions minister Torsten Bell pledged to issue the guidance during the heated debates over mandation in the Pension Schemes Bill earlier this year. He subsequently tasked Sir Robin and a committee of industry experts to come up with the guidance that was put to the industry this week.
The minister said this week: “Every day, trustees make decisions that shape the retirement of millions of people, and they deserve clear support to make those with confidence and to ultimately deliver the best possible results for savers.
“We all owe the wide range of industry experts that have directed this work to clarify the existing law a vote of thanks. Wider consultation will support future strengthening of this guidance.”
What the guidance aims to achieve
The consultation cites several areas that trustees have consistently found create uncertainty around fiduciary duty, including “sustainability-related considerations, system-level risks such as climate change, nature and biodiversity, and geopolitical developments”.
The guidance also explores “factors that may affect members’ future costs and circumstances of living, and decision-making under conditions of uncertainty and incomplete information”.
“The challenge is often not in identifying the relevant legal duties themselves, but in understanding how those duties should be applied in practice when making complex investment decisions within an evolving investment environment,” the consultation document states.
The guidance takes into account existing trust law and case law, as well as the regulatory frameworks the pension schemes operate in. It also draws heavily on work by the Law Commission, including an influential 2014 report on the fiduciary duties of investment intermediaries, and the Financial Markets Law Committee’s work on trustee decision-making around sustainability and climate-related financial risks.
What the committee said
“For several years, we have been calling for greater clarity that pension trustees can take a longer-term view and consider system-level implications when making investment decisions. We recognise that fiduciary duties are a complex topic and that opinions differ across the UK pensions industry. We hope people engage with the consultation fully and that there is broad support… so that the final version gives trustees the confidence to make more holistic decisions in the best interests of their members.”
“Fiduciary duty is capable of encompassing a wide range of issues where financially material. In assessing financial materiality, human judgement and narrative can be just as valuable as numbers… Inevitably, there will be a range of perspectives here as the consultation progresses. Some of the issues are potentially emotive. A sensible approach is to consider the draft guidance deliberatively and with an open mind.”
“There are two areas where we feel the law should be strengthened if it is to support pension trustees in serving members’ best interests. In our view, trustees should be able to take account of member views when making decisions, and to consider not just how investments might affect the size of a saver’s eventual pot but also how investment decisions might influence their standards of living in retirement.”
“[The guidance] will support trustees to consider financially material factors such as climate change, nature, social issues, and wider systemic risks where these may affect members’ long-term outcomes. By providing greater certainty around the existing framework, the guidance supports trustees in exercising their judgement while keeping strong financial outcomes for members firmly at the heart of every decision.”
“There is a lot here for the industry to digest. But trustees should not read the draft as requiring an immediate wholesale revision of existing arrangements. What matters is identifying financially material considerations, taking appropriate advice and following careful and proportionate processes to reach the best overall decisions for members.”
