As a pension trustee you need to review your scheme’s default investment strategy and performance at least every three years.
The strategy should be set out in a statement of investment principles (SIP) that details how the trustees plan to invest the default arrangement assets.
Generally, the default arrangement is used for members of defined contribution (DC) schemes who don’t choose other investment options.
You will need to set the default strategy if you haven’t already got one.
1. Check if the strategy needs reviewing
You must review the default strategy if:
- you haven’t done so in the last three years
- you have significantly changed your investment policy since the last review
- the profile of the default arrangement membership (eg the average age) has changed significantly since the last review
There are new requirements that apply from 1 October 2019. If your SIP does not already address them, you will need to review your default strategy by 1 October 2019 and update your default SIP.
You will need to state your policies on the following in the SIP:
- matters which you consider financially material over the appropriate time horizon, such as environmental, social and governance issues (including climate change) – this includes how these are taken into account when selecting, retaining and realising investments
- the extent to which members’ views have been taken into account when selecting, retaining and realising investments
- stewardship issues such as voting rights (only applies to schemes with 100 members or more)
Check with your legal adviser if you’re unsure about complying with the requirements.
2. Know what your members want
You should understand the needs of your scheme members before you review the default strategy. This will help you to decide if the default strategy is still suitable.
Issues you should focus on include:
- when they expect to take their pension
- how they expect to do that, eg if they want to take their pension as cash or receive an income
If you don't already have this information you could ask members for their views. For example, you could carry out interviews or run an online survey.
If you can't get enough information from members, you should ask your advisers about their experience of other similar schemes.
If you don't have an adviser who can help, you should look at information that is publicly available. For example, read pensions research by Citizens Advice.
3. Carry out the review
Your review needs to check if the default strategy is still suitable. You should take into account the information you have gathered about your members’ needs.
You also need to review the performance of the default arrangement. In particular, check how the investments are performing against the aims and objectives you agreed when you set the default strategy.
With the assistance of your investment adviser or provider, consider whether the default arrangement still meets your aims and objectives, particularly if you have amended your default strategy. If it doesn’t, you should choose an alternative that does.
If you need to appoint an investment adviser, you should choose someone suitably qualified. You can check if an adviser is authorised on the Financial Conduct Authority financial services register.
4. Update paperwork and record decisions
It is important that you keep a record of how you reviewed the default strategy and suitability of the default arrangement. This includes the decisions you made. You should do this even if you make no changes.
If you take any action as a result of the review, you need to update the SIP for the default arrangement.
Information that must be provided on a website
You are now required to provide the default SIP free of charge on a website. You should check when this requirement applies to your scheme.
You must also describe any review carried out during the year and explain any changes made as a result. If you have not reviewed the default SIP during the year you must provide the date of the last review.
You should provide the website address in the members’ annual benefit statement and make sure that no passwords are needed to access it.