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Statements of investment principles

General code in force: 28 March 2024

This module forms part of our expectations for trustees of those schemes required to operate an effective system of governance, see Systems of governance.

  1. The purpose of a statement of investment principles (SIP) is to set out the governing body’s investment strategy, including the investment objectives and investment policies they adopt.
  2. Governing bodies of trust-based occupational pension schemes with 100 or more members, must prepare a SIP and review it at least every three years1. They must also review it as soon as possible after any significant change in investment policy. When preparing the SIP, governing bodies must obtain and consider professional advice2, and consult any sponsoring employer.
  3. Governing bodies may have separate SIP documents for each individual arrangement within a scheme, but this is not a requirement. The law requires the governing bodies of relevant3 schemes to make the most recent SIP for any default arrangement(s), which is subject to different content and review requirements4, available to members as part of the annual chair’s statement and the scheme’s annual report and accounts.
  4. Governing bodies of all schemes that are required to prepare a SIP in accordance with section 35 of the Pensions Act 1995 must publish that SIP online, make it publicly available, and free of charge. When publishing a SIP online, governing bodies should follow our General principles for member communications.
  5. In cases where preparing a SIP is not a legal requirement, in our view, it would be good practice for governing bodies to prepare a document that is similar in nature, and to publish it online as if the SIP was required.
  6. The SIP must contain:
    1. the governing body’s policy for securing compliance with the legislation on choosing investments5
    2. the governing body’s policies relating to:
      • the investments to be held by the scheme
      • the balance between different investments
      • risks – including how they are to be measured and managed
      • the expected return on investments
      • the realisation of investments
      • financially material considerations6 over the appropriate time horizon of investments, and how they are taken into account in investment decisions
      • the extent to which non-financial matters are taken into account in investment decisions7
      • how the governing body exercises rights, including voting rights, attached to investments
      • undertaking engagement activities in respect of investments, including, but not limited to the methods set out in legislation8
      • any arrangement with the asset manager, setting out the matters described in legislation9
  7. A SIP10 relating to a default arrangement must contain:
    1. the aims and objectives of the trustees or managers in respect of the investments in the default arrangement
    2. the matters set out in the Investment Regulations11
    3. an explanation of the intention to ensure that assets of the default strategy are invested in the best interests of the members using it, and their beneficiaries
  8. Under section 249A of the Pensions Act 200412, governing bodies of certain schemes must establish and operate an effective system of governance (see Systems of governance including internal controls (see Internal controls). However, there are certain exemptions13. The system of governance must be proportionate to the size, nature, scale, and complexity of the activities of the scheme.
  9. There are various steps that a governing body needs to go through when preparing and maintaining their SIP. We expect that governing bodies required to operate an effective system of governance that also have investment responsibilities will have the measures set out in paragraphs 10 and 11 in place. Other schemes may wish to adopt these principles as good practice.
  10. When preparing and maintaining their SIP, the governing body should:
    1. ensure that relevant membership data is accurate
    2. consider the interests of active and deferred members and any members who are in a decumulation phase within the scheme
    3. consider any information they have obtained about when and how members may wish to take their benefits
    4. regularly assess the performance of investments and any investment options, including any default arrangement, within the context of the relevant objectives
    5. consider evaluating performance by referring to recognised and credible industry benchmarks for investment funds with similar risk/reward profiles
    6. document the evaluation process for each fund and consider the total amount of costs and charges levied on each fund, including transaction costs wherever possible
    7. consider the scheme’s whole investment strategy (not just individual funds) taking into account the characteristics of different member segments
    8. review the governance structure relating to how investment risks are assessed and investment decisions are made
    9. consider the benefits of delegating some of the duties and the potential for establishing an investment sub-committee
    10. assess the financial materiality of environmental, social and governance (ESG) factors and allow for them when developing and implementing the investment strategy. See also Stewardship and Climate change.
    11. ask their investment manager(s) and investment adviser for help with assessing the financial materiality of ESG factors, if they do not have the necessary expertise in-house
    12. carefully consider the demographics and diversity of scheme members and take into account the types of investments scheme members may want or need
    13. carefully consider whether potential ESG issues may affect the risk-adjusted return members may receive
    14. take account of risks affecting the long-term financial sustainability of the scheme investments
    15. understand the ESG approach of the available funds and consider this in the selection criteria for new funds, including where a pooled fund is chosen
    16. monitor how investment managers take into account ESG factors in practice, including where a pooled fund is chosen
    17. consider the risks and opportunities of climate change. See Climate change
  11. In addition, when preparing their SIP, trustees of DB schemes should set out overall DB investment objective(s) for the fund, which allow for:
    1. the scheme’s liabilities
    2. the strength of the employer covenant
    3. the risk capacity and appetite of the sponsor and trustees

Glossary and legal references

Decumulation

The phase during which a member converts their pension savings into retirement income or makes a legitimate withdrawal from their pension pot.

Pooled funds

Funds in which many different investors may invest, as distinct from segregated funds, in which the pension scheme would be the only investor.

Relevant scheme

Schemes defined by Regulations 1(2) of the Occupational Pensions Schemes (Scheme Administration Regulations) 1996.

1Regulation 2(1) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(1) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

2Regulation 2(2) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(2) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

3Within the meaning of Regulation 1(2) of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 [within the meaning of Regulation 1(2) of the Occupational Pension Schemes (Scheme Administration) Regulations (Northern Ireland) 1996]

4Regulation 2A Occupational Pension Schemes (Investment) Regulations 2005 [Regulation 2A Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

5Section 36 of the Pensions Act 1995 [Article 36 of the Pensions (Northern Ireland Order 1995]

6Regulation 2(4) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(4) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

7Regulation 2(4) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(4) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

8Regulation 2(3)(c) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(3(c) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

9Regulation 2(3)(b) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(3)(b) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

10 Regulation 2A (1) Occupational Pension Schemes (Investment) Regulations 2005 [Regulation 2A (1) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

11Regulations 2(3)(b), 2(3)(c) and 2(3)(d) Occupational Pensions Schemes (Investment) Regulations 2005 [Regulation 2(3)(b), 2(3)(c) and 2(3)(d) Occupational Pensions Schemes (Investment) Regulations (Northern Ireland) 2005]

12Article 226A of The Pensions (Northern Ireland) Order 2005

13Section 249A(3) of the Pensions Act 2004 [Article 226A (3) of The Pensions (Northern Ireland) Order 2005]

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