The government is planning more legislation to put fiduciary duty on a statutory footing and support greater domestic investment, the pensions minister has announced.
During a debate in parliament on the Pension Schemes Bill yesterday (3 December), Torsten Bell said the government would “develop statutory guidance for the trust-based private pensions sector” on a wider interpretation of fiduciary duty.
This would take into account the contents of an amendment tabled by Labour MP Liam Byrne, which gained the support of more than 30 policymakers from various parties. The amendment is a proposed new clause for the Pension Schemes Bill, although Bell indicated it would be developed into a separate piece of legislation.
“There is a shared belief across this House that working people should be able to use their savings to build a richer and stronger country in which to retire.”
Liam Byrne, Labour MP
As currently worded, Byrne’s clause – listed as New Clause 17 in parliamentary documents – would allow trustees to include a range of factors when making investment decisions. These include “system-level considerations”, members’ views, and the “reasonably foreseeable impacts” of assets or organisations in which the pension scheme invests. These impacts can include issues affecting “members’ and beneficiaries’ standards of living”.
Bell said the measures would not be “hardwired” into primary legislation, indicating that the government would consult on the proposals.
He explained: “The guidance will encapsulate those wider factors set out in [New Clause 17], with the goal being to provide practical support to trustees about how to comply with their existing duties in considering these factors, including what we mean by systemic risks and standards of living.
“There is good support in the industry for providing that clarity, giving added confidence to trustees that they can invest in the long-term interests of their members and our society. We will set out more details on our guidance plans in due course.”
“We welcome the government’s decision to bring greater clarity to trustees’ duties through statutory guidance and look forward to playing a leading role in helping develop it.”
Zoe Alexander, Pensions UK
Bell said he intended to “bring forward clarity on the next steps in a matter of months”. Pushed further on the potential timescale, the pensions minister added: “I would envisage taking powers in primary legislation and then consulting on the statutory guidance relating to the powers provided to the government.”
In response to the news, Zoe Alexander, Pensions UK’s executive director of policy and advocacy, said fiduciary duty was already “sufficiently broad and permissive to allow trustees to consider a wide range of financially material factors, including ESG and system-level risks”.
However, she added: “We welcome the government’s decision to bring greater clarity to trustees’ duties through statutory guidance and look forward to playing a leading role in helping develop it.”
Fiduciary duty: Is it time for legislation?
With the government threatening to mandate private markets investment for DC pension schemes, Andy Lewis and Stuart O’Brien of Sackers argue that trustees’ fiduciary duty deserves a more stable, long-term legal foundation. Read the full article.
An alternative to mandation?
Explaining his proposed amendment, Byrne said: “As we know, pension fund trustees have fiduciary duties to the people they represent and the people they serve, but those duties need clarity, and for too long that clarity has been missing.
“What we have instead is confusion, and from that confusion comes a caution, and from that caution comes a world in which pension scheme providers are simply not investing what they could and what they should in the productive assets of our country.”
“This is about giving trustees that ability and not specifying that they must do so.”
Torsten Bell, pensions minister
He added: “There is a shared belief across this House that working people should be able to use their savings to build a richer and stronger country in which to retire.”
The Labour MP for Birmingham Hodge Hill and Solihull North said his clause did not “alter the statutory purpose of pension schemes” or threaten investment returns. In addition, he argued that it could negate the need for mandation powers contained elsewhere in the Pension Schemes Bill.
Several MPs criticised the mandation clause during the debate. As it stands, the Pension Schemes Bill gives the government a reserve power to force defined contribution master trusts to invest in certain assets. While Bell and chancellor Rachel Reeves have both repeatedly stated that they do not believe the power would be needed, they have strongly resisted calls to scrap or amend the clause.
However, when discussing the fiduciary duty issue, Bell told parliament that there was a need for clarity so that “rather than debating whether trustees have the ability to invest with these longer-term structural or systemic factors in mind, they can get on with doing so, if they so wish”.
He added: “I should say that this is about giving trustees that ability and not specifying that they must do so.”
Addressing investment ‘paralysis’
Byrne praised the contents of the Pension Schemes Bill and its efforts to increase the amount of pension capital being put to work domestically in assets such as affordable homes and renewable energy.
However, he warned that the bill would “fail” if it does not clarify “exactly what it is that pension fund trustees can consider”, as many schemes do not make such investments because they are “unsure of the law”.
“We risk creating bigger and better-managed funds that still fail to invest in our country, and still fail to invest in our country’s future,” Byrne said.
“Today’s rules were built to ensure prudence, but what they are doing is creating paralysis,” he continued. “Scheme providers want to do more, members expect them to do more, and our country needs them to do more – but all that can only happen if parliament now provides the clarity that the courts have not provided.”
Bell praised his fellow Labour MP’s “powerful advocacy”, noting that “different trustees continue to take different approaches to interpreting those duties, and in particular in how they take into account structural factors such as climate risk and members’ standards of living when they are making investment decisions”.
Byrne concluded: “We have a profound duty to ensure that the maximum amount of pension savings in this country not only yield a return to give comfort to savers in their golden years, but do a double duty: they should help to provide the productive investment that we need to build a bigger and richer country.”
This article was updated on 4 December to include a comment from Pensions UK.
