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Investment governance


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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You can also read more information about the consultation.

Published: 17 March 2021

The term ‘investment governance’ refers to the policies and procedures that ensure a governing body complies with any obligations it has in relation to investment.

A governing body’s powers and responsibilities regarding investment will be scheme specific, and so its governance arrangements must also be relevant and tailored to the scheme. See also Investment decision making.

The scheme managers of Local Government Pension Schemes do not have the same obligations in pensions legislation, but it is good practice for them to approach investment governance in the same way.

Obligations of governing bodies of DC and DB schemes

  • Have a good working knowledge of investment matters relating to their scheme.IN1
  • Understand the investment powers and duties they have under the scheme trust deed, and rules and legislation.IN2 See also Working knowledge of pensions.
  • Appoint a suitably qualified person to advise on investmentsIN3 and obtain and consider proper advice before making investment decisions.IN4
  • Produce a statement of investment principles (SIP), which covers their policies relating to the scheme’s investments. Learn more in Statement of investment principles.
  • Produce an annual implementation report as part of their annual report and accounts. See Implementation report.

The governing bodies of most DC schemes must produce a SIP for their default arrangement(s) if they have them, which is subject to different requirements. Learn more in Statement of investment principles.

Under section 249A of the Pensions Act 2004,IN5 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.IN6 We expect that such governing bodies with investment responsibilities will have the following measures in place:

The governing body should:

  • clearly document the objectives, roles, responsibilities and reporting relationships of all parties involved in making investment decisions
  • ensure that investment decisions are taken by those with the necessary skills, knowledge, information and resources
  • obtain advice and other inputs required to properly govern the scheme’s investments (including considering what advice may be needed)
  • ensure the governance structure relating to the assessment of investment risks and how investment decisions are made is reviewed regularly and is appropriate for their scheme’s circumstances and level of complexity
  • delegate investment decisions where appropriate for their scheme’s circumstances and level of complexity. This may include delegating to an investment sub-committee or a qualified fund manager.
  • have clear terms of reference and appropriate oversight for any bodies with delegated responsibilities
  • have written policies covering the use of advisers. These policies should cover when to use advisers for the specific circumstances of the scheme, which should consider the investment knowledge and experience available to the governing body and the relevant legal requirements.
  • have sufficient expertise to evaluate and challenge the advice they receive from advisers and service providers
  • ensure investment policies take account of potential long-term effects on scheme investments
  • assess the performance of scheme investments at least quarterly
  • formally consider the performance of investment managers and advisers at least every three years and act upon any issues identified

The governing body of a scheme with a DC element should:

  • offer an appropriate choice of investment arrangements for members who do not wish to invest in any default arrangement
  • provide access to information to enable members to make an informed choice about where their contributions are invested where more than one investment arrangement is available
  • inform members in advance of potential changes to an investment offering
  • allow members the opportunity to actively choose to switch to a new DC investment arrangement where their existing arrangement is changed or replaced
  • if replacing or modifying an existing investment arrangement, manage the transition costs to maintain value for members

The governing body of a scheme with a DB element should:

  • have governance policies that ensure the form and structure of liabilities, the strength of the employer covenant, the risk of sponsor default, life expectancy of members and the need to access cash at particular times are taken into account in investment decision-making
  • clearly communicate the policies above to advisers, investment managers and other relevant stakeholders

Glossary and legal references

Employer covenant

The ability of the sponsoring employer to financially support a DB pension scheme

Membership profile

The demographics of the scheme membership, including their age and wealth

Sponsor default

The risk that the sponsoring company will default on pensions commitments


The process of taking an active role in oversight of the assets in which the scheme is invested

Stewardship reports

Reports from investment managers explaining what activity they have undertaken in the stewardship of the fund eg voting at AGMs

IN1Sections 247 and 248 of the Pensions Act 2004
[Articles 224 and 225 of the Pensions (Northern Ireland) Order 2005]

IN2Sections 247 and 248 of the Pensions Act 2004
[Articles 224 and 225 of the Pensions (Northern Ireland) Order 2005]

IN3Section 47 of the Pensions Act 1995
[Article 47 of the Pensions (Northern Ireland) Order 1995]

IN4Section 36 of the Pensions Act 1995
[Article 36 of the Pensions (Northern Ireland) Order 1995]

IN5Article 226A of the Pensions (Northern Ireland) Order 2005

IN6Section 249A(3) of the Pensions Act 2004
[Article 226A(3) of The Pensions (Northern Ireland) Order 2005]