Outsourcing could see an uptick in the U.K. as pension trustees grapple with even more scrutiny as a result of new and upcoming regulations.
The job of a U.K. trustee has become much more complex in recent years because of an increase in governance risk and time spent on decision-making processes as well as a growing need for technical knowledge, which trustees, who are elected from the workforce, typically don't have.
But that burden is set to increase again, sparking further need to delegate. Demands are growing around disclosure in retirement plans' statement of investment principles, an annual report that outlines the investment policies and principles of U.K. occupational plans. Although plans have had to report their investment policies in the past, under new rules effective Oct. 1, trustees will additionally have to prove how they incorporate environmental, social and governance factors and present financially material ESG considerations over the lifespan of their plans' investments.
One year later, on Oct. 1 2020, trustees will be required to produce an implementation report setting out how they acted on the principles set out in their policy.
In the implementation report, trustees will be expected to state:
- Their policy regarding financially material considerations over the appropriate time horizon of their investments, including climate change.
- Plan participants' views on non-financial matters, including their ethical views and their views on social and environmental impact.
- Stewardship of investments, including how trustees exercise voting rights and undertake engagement with their investee companies.
Sources warned many trustees haven't yet realized the rigor and magnitude of the new requirements. As a result, U.K. trustees will rely more on advisers, independent trustee firms or fiduciary managers to free up their time to cope with the increasing workload, according to some sources.
Nick Clapp, head of business development at fiduciary manager Kempen Capital Management in London, believes trustees have not yet absorbed the full complexity of the new regulation.
"Their agenda this year is significantly different to what it will be five years from now," he said.