Investment monitoring

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. Trustees’ fiduciary duties include managing investments with due skill, care, and diligence. The law requires governing bodies who have responsibility for investment decision-making to exercise those powers in accordance with regulation 4 of the Occupational Pension Schemes (Investment) Regulations 2005¹ unless exempt².
2. Under section 249A of the Pensions Act 2004³, 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 exemptions⁴. The system of governance must be proportionate to the size, nature, scale, and complexity of the activities of the scheme.
3. An effective system of governance includes having systems in place to monitor and review the performance of their investments.
4. Governing bodies may do this by using manager or adviser reports; or having meetings with the managers or advisers. If they are relying solely on reports produced by their investment managers, they may wish to seek independent advice to help interpret the reports⁵.
5. The scheme managers of Local Government Pension Schemes do not have the same obligations in pensions legislation. However, it is good practice for them to approach investment governance in the same way.
6. Governing bodies must be confident that investment governance (see Investment governance) is carried out in accordance with legal obligations, with the best interests of scheme members and their beneficiaries in mind, and by people with the right expertise (particularly where any of these functions are outsourced).
7. Governing bodies should:
   1. have procedures to review and negotiate the terms of contractual arrangements and fund documents in place with investment managers and advisers as appropriate (see Managing advisers and service providers)
   2. regularly monitor the performance of their scheme’s investment managers and advisers (see Managing advisers and service providers)
   3. have procedures in place to regularly monitor their scheme’s investments and performance that should:
      • consider investment returns both before and after fees, and against any relevant benchmarks
      • compare investment performance against their stated short and long-term investment objectives
      • consider fees and costs and whether they are justified
      • where applicable, consider their value for members assessment (see Value for members)
   4. consider whether and how to report to interested parties, for example members, participating employers, and sponsoring employers
   5. ensure monitoring information is prepared at least quarterly, and at shorter intervals if appropriate for the size and complexity of the scheme
   6. where applicable, ensure analysis of monitoring information includes a stress test, scenario test, or other risk assessment information, to assess the impact of changing circumstances on scheme assets and if relevant, funding level
   7. monitor the level of investment risk run to deliver the performance and how this compares with the investment manager’s risk targets
   8. consider environmental, social, and governance (ESG) factors, including shareholder engagement, and have sufficient processes in place to ensure compliance (see Stewardship and Climate change)
   9. seek to ensure that controls (including those related to the security, liquidity, and safe custody of the scheme assets) are in place to alert them to potential financial risks relating to their investment manager
   10. regularly assess the effectiveness of their processes, ensuring proper review and monitoring of investments and making improvements as appropriate
8. To govern effectively and meet the expectations listed above, governing bodies should set clear expectations for their investment managers where relevant.

Legal references

¹ Regulation 4 Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005

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

³ Article 226A of The Pensions (Northern Ireland) Order 2005

⁴ Section 249A(3) of the Pensions Act 2004 [Article 226A (3) of The Pensions (Northern Ireland) Order 2005]

⁵ Regulation 2 Occupational Pension Schemes (Investment) Regulations 2005 [Regulation 2 Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

Related content

• DB investment: overview
• DC investment: detailed guidance