Another year and another set of requirements. Having met the 1st October 2019 deadline for updating their Statements of Investment Principles, trustees now face a further set of deliverables for 1st October 2020.

By Ramona Tipnis

The journey started with new DWP regulations requiring trustees to set out certain financial, non-financial and stewardship policies in their SIPs. These regulations are due to be extended to include additional disclosure on the relationship with asset managers and a commentary, in the form of an implementation statement, on how they have performed against their stated policies. The hope is that this will help improve engagement with members, as well as with the companies in which schemes ultimately invest both via equity and debt.

If considered carefully, and the reporting requirements encourage trustees to do just that, these new requirements should have a positive impact on member outcomes. Whilst the upfront work might be daunting, once we settle into the rhythm of reviewing and reporting on the new requirements for the SIP, we’ll come to see this as business as usual.

So where are we currently?

Trustees of both DC and DB schemes with more than 100 members should have already updated their SIPs by 1 October 2019 to comply with the requirements outlined above.

DC schemes must also have a SIP for their default arrangements (even where there are fewer than 100 members), publish this on a publicly available website and signpost it for members via their annual benefit statements. Hybrid schemes with a DC element (excluding those with AVCs only) are also required to meet these requirements. Finally, these policies must be included in the first Annual Report published on or after 1 October 2019.

What’s next?

By 1 October 2020 trustees must have updated their SIPs to include details of how they engage with asset managers on investment strategy, performance, voting polices and costs, to ensure alignment with their schemes’ policies and objectives over the medium to long term. Whilst some forward-thinking trustees will already have incorporated these requirements in their SIPs at the earlier deadline, many will still be considering the implications of these additional requirements.

Scale is certainly important if we are going to effect change at asset managers, and TPR accepts that smaller schemes might not be able to carry out stewardship duties effectively. The hope, however, is that there will be some degree of collective engagement. It is difficult to see how this will happen immediately but, as with anything, over time we might begin to see schemes collaborating in some way on these issues.

Finally, DB schemes join their DC and hybrid counterparts in having to make their SIPs available on a freely accessible website by 1 October 2020.

And the implementation statement?

Having updated the SIP, trustees must publish an implementation statement demonstrating how, and to what extent, it has been followed during the year under review, including any formal reviews. The aim is to ensure that trustees follow through on their intent with concrete actions.

DC and hybrid schemes will lead the way, having to include an implementation statement in their first annual report published on or after 1 October 2020. Like the SIP, the implementation statement must also be made available on a publicly available website as and when the annual report is published.

We must concede that there remains some confusion as to the exact timing of the first implementation statement. We have stated our view above, but opposing views include publishing the implementation statement no later than 1 October 2020 and publishing (later) in the first annual report with reference dates on or after 1 October 2020.

Trustees of DB schemes have another year to comply in this respect, and so will be able to assess the demands as this is clarified. DC and hybrid schemes in the first wave will prove to be the test cases for the exact nuance of the date. Our advice is to err on the side of caution and to begin considering now what is required to produce an effective implementation statement.

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