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18.0 Introduction

This section deals with meeting liabilities, maximising returns, identifying returns required on investments, and authorisation under a Regulatory Organisation.

Comment

The factors needing to be taken into account when setting investment objectives [see 18.2.6]ought to be reviewed at least annually, to ensure that the scheme’s assets are not invested in isolation.

The factors affecting investment risk also need to be reviewed regularly. Investment risk does not just come from the ups and downs of markets. It can also arise, for example, through having an inappropriate spread of investments across sectors and markets or having an inappropriate concentration of assets, geographically or by stock.

The general rule is that the distribution of the fund should be monitored regularly and adjusted as necessary to keep its distribution pattern to that required by the scheme’s investment objectives as set out in the scheme’s Statement of Investment Principles.

Trustees of money purchase schemes need to pay special attention to risk management. For example: how much investment choice should be given to members, bearing in mind that the trustees are ultimately responsible for selecting the scheme’s investment funds and its investment managers? Should members’ accounts be switched out of investment markets into, say, cash and/or fixed-interest investments prior to retirement to avoid the potential of downside movements occurring at the wrong time? If so, who should decide: trustees or members? 

The message of this section is monitor the performance of assets regularly and obtain appropriate investment advice on a regular basis from a person authorised to give such advice. Make sure the scheme’s Statement of Investment Principles enables investment in the type of investments held by the scheme.

Also, consider disinvesting any employer-related investments. [An opinion on self-investment can be found in 20.7.4.] The trustees' Statement of Investment Principles should include a section on ‘employer risk’.

In their role of making investment decisions the courts expect trustees to act prudently and to take appropriate investment advice.

To quote from the Code of Guidance for Independent Pension Trustees prepared by the Independent Trustee Group: Trustees should:

(i)  not go beyond the limits of their investment powers in the Trust Deed and Rules
(ii)  assess whether all investments are appropriate and are bona fide for the sole purpose of providing benefits from the scheme
(iii) not exceed their confidence level
(iv) ensure that proper advice is taken. and
(v) monitor compliance with legal obligations. 













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