UK and Canadian Pension Fund – Law
Comparative Study of U.K.
and Canadian Pension Fund Transparency Practices
4. Relevant U.K. Law Regarding
the SEE Issue Disclosure Requirement in the SIP
Introduction
The
majority of U.K. pension schemes are trust-based and
governed by a board of trustees. This board has a responsibility
to administer the scheme in accordance not only with
the rules of the scheme but also with a plethora of
other rules and regulations derived from a number of
different areas of law. These areas include inter alia
trust, contract, tax, social security and employment
law and the Financial Services Act. The employer sets
the scheme rules, with the responsibility for pension
schemes falling within the jurisdiction of several government
departments.
Under
common law, pension scheme trustees have a duty of care
to “…take such care as an ‘ordinary
prudent man’ would take if he were minded to make
an investment for the benefit of other people….”6 However, the lack of a comprehensive statutory framework
prior to the introduction of the 1995 Pensions Act was
a serious cause of concern. This concern crystallized
in the 1990s when the loss of pension funds through
misappropriation came to light during the collapse of
Robert Maxwell’s publishing empire.
Prior
to the 1995 Pensions Act, schemes were required to supply
certain information to members, including benefit statements
and scheme details. Other information was to be available
on request, including the scheme documents and the annual
report. In 1998, John Denham, the then U.K. Parliamentary
Under-Secretary of State for Social Security, announced
government proposals for further disclosure of the investment
policies of pension funds. He also stated that regulations
might be introduced to require pension funds to include
a specific reference to their policies on socially responsible
investment when they set out their SIPs (Denham, 1998).
Two years later, an amendment to the 1995 Pensions Act
came into effect. From July 3, 2000, occupational pension
fund trustees have been required to state in their SIPs
7the
extent to which SEE considerations are taken into account
in their investment strategies. The following discussion
focuses in particular on those sections of the relevant
legislation that pertain to the responsibilities of
trustees to provide information to their members.
Pensions
Act 1995
The
1995 Act came into force in 1997, following a pensions
law review (Goode, 1993) and effectively codifying trust
law and good practice. The Goode committee observed
that trustees of pensions funds were “entitled
to have a policy on ethical investment and to pursue
that policy, as long as they treat the interests of
the beneficiaries as paramount and the investment policy
is consistent with the standards of care and prudence
required by the law.” However, at the time, including
discussion of any such policy within the SIP did not
become a requirement.
The
1995 Pensions Act required that:
(1)
The trustees of a trust scheme must secure that there
is prepared, maintained and from time to time revised
a written statement of the principles governing decisions
about investments for the purposes of the scheme.
(2)
The statement must cover, among other things –
(a)
the trustees’ policy for securing compliance with
sections 36 and 56,and
(b) their policy about the following matters.
(3)
Those matters are –
(a)
the kinds of investments to be held,(b) the balance between different kinds of investments,
(c) risk,
(d) the expected return on investments,
(e) the realisation of investments, and
(f) such other matters as may be prescribed.”
(Pensions Act, 1995 s.35)
Post-1995
Developments
Another
period of consultation on pension reform commenced in
the late 1990s, as part of the government’s Welfare
Reform Programme, when John Denham was Parliamentary
Under-Secretary of State for Social Security. The consultation
document issued by the Minister—Strengthening
the Pensions Framework: A Consultation Document (HMSO,
1998a)—introduced the idea of adding disclosure
of SEE considerations to the SIP. Views were invited
on the following draft proposal:
For
the purposes of section 35(3)(f) of the 1995 Act (other
matters to be contained in the statement of investment
principles), the statement must cover whether the
trustees take into account any considerations other
than financial considerations, and if so, what these
are and how investment decisions are affected. (p.
39)
The
green paper A New Contract for Welfare: Partnership
in Pensions (Cm 4179) also issued in 1998 (HMSO, 1998b)
echoed similar sentiments and set out that
[p]ension
funds must consider how their funds are invested.
The Government believes that, subject to the over-riding
requirements of trust law in respect of the interests
of the beneficiaries, trustees should feel able to
consider moral, social and environmental issues in
relation to investments. (Ch. 8, para. 68)We
believe that it is right that all trustees should
consider how far such issues should affect the way
they invest the assets of the pension fund. We believe
that the best way to achieve this is the introduction
of a regulation under the Pensions Act 1995. Such
regulation would require pension fund trustees to
set out their policy if any in their statement of
investment principles. (Ch. 8, para. 69)
In
the final draft of the Occupational Pension Schemes
(Investment, and Assignment, Forfeiture, Bankruptcy
etc.) Amendment Regulations 1999, an additional clause
in respect of voting rights was inserted and “considerations
other than financial considerations” became much
more specific. The relevant amendment required that
[t]he
matters prescribed for the purposes of section 35(3)(f)
of the 1995 Act (other matters on which trustees must
state their policy in their statement of investment
principles) are –(a) the extent (if at all) to which social, environmental
or ethical considerations are taken into account in
the selection, retention and realisation of investments;(b) their policy (if any) in relation to the exercise
of the rights (including voting rights) attaching
to investments. (1999, SI 1849)
Amendments
to Related Regulations
New
regulations also imposed similar requirements upon public
sector pension funds, which mandated a
regulation
which requires each administering authority to prepare,
maintain and publish a written statement of principles
governing their policy on investments of pension fund
moneys. This statement must cover the same matters
as those the trustees of a trust scheme must include
in the statement that they are required to prepare
under section 35 of the Pensions Act 1995. The statement
must also include the authority’s policy on
the extent to which social, environmental or ethical
considerations are taken into account. (1999, SI 3259)
Additionally
the requirement was extended to stakeholder pensions,
requiring a SIP for schemes not established under trust
detailing:
(f)
the extent (if at all) to which social, environmental
or ethical considerations are taken into account in
the selection, retention and realisation of investments.
(2000, SI 1403)
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