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Investment decision making


Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

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Published: 17 March 2021

Governing bodies of trust based pension schemes with 100 members or more must invest in a way that ensures security, quality, reasonable liquidity and profitability for the scheme as a whole.IV1 This also applies to financial managers with delegated investment responsibilities. The law also requires these governing bodies to invest scheme assets predominantly in regulated markets.IV2, IV3 Unless there are exceptional circumstances, governing bodies should ensure no more than a fifth of scheme investments are held in assets not traded on regulated markets

Governing bodies of trust based schemes with fewer than 100 members must ensure their investments are appropriately diversified.IV4

Under section 249A of the Pensions Act 2004,IV5 governing bodies of certain schemes must establish and operate an effective system of governance (see Scheme governance) including internal controls (see Managing risk using internal controls). However, there are certain exemptions.IV6 This system will include having processes in place to ensure prudent management of investments.

Governing bodies should:

  • have processes in place to make sure that investment decisions can be made in an effective and timely manner and implemented promptly and appropriately
  • ensure that all the involved parties are clear on where responsibility and accountability sits in relation to the provision of oversight, advice and decision-making
  • be able to critically evaluate the main points of the investment information received and understand the basis on which that information has been provided
  • ensure cost and charges relating to any advice sought and/or investment transactions that may result represents reasonable value
  • consider any likely personal biases and any conflicts of interest the person giving the input may have in the decisions to be made. Learn more in Conflicts of interest.
  • regularly assess the effectiveness of the governing body’s investment decision-making and governance processes
  • have clear terms of reference for any sub-committees
  • set objectives for their investment holdings, considering the different requirements of the accumulation and decumulation phases
  • document objectives and strategies appropriately, and regularly review to assess whether investment performance is in line with objectives and continues to remain suitable for members
  • ensure the investment structure and decisions made in relation to investments will deliver the objectives and outcomes in accordance with the principles set out in the SIP. See Statement of investment principles.
  • document any changes to investments or investment strategy, the reasons they were needed, and the improvements expected
  • if using a bespoke investment arrangement to meet specific requirements, document a clear explanation of their strategy and objectives and how the specific requirements will be met
  • clearly identify any investments not traded on a regulated market, document why such investments are being used and how they fit in with the agreed investment objectives
  • understand the types of protection available, such as indemnity insurance or the Financial Services Compensation Scheme, for their different investments in the event of fraud, wrongdoing or other adverse events
  • review the investment managers’ fund documentation, get appropriate legal and investment advice and put in place the right level of protection for members, having considered that advice
  • consider if and how to communicate the conclusions about the security of assets to members and employers

Glossary and legal references


Taking money out a pension in a legitimate way. For example, as a lump sum or by buying an annuity.

IV1Regulation 4(3) Occupational Pension Schemes (Investment) Regulations 2005
[Regulation 4(3) Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

IV2Regulation 4(5) Occupational Pension Schemes (Investment) Regulations 2005
[Regulation 4(5) Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

IV3As defined in Regulation 4(11) Occupational Pension Schemes (Investment) Regulations 2005
[Regulation 4(11) Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

IV4Regulation 7(2) of Occupational Pension Schemes (Investment) Regulations 2005
[Regulation 7(2) Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

IV5Article 226A of The Pensions (Northern Ireland) Order 2005

IV6Section 249A(3) of the Pensions Act 2004
[Article 226A(3) of The Pensions (Northern Ireland) Order 2005]