The Pension Schemes Bill, which is just starting to move through Parliament again, will require trustees of Defined Benefit (DB) schemes to set a ‘funding and investment strategy’. This strategy, which must be recorded in a new statement, will set out the funding level the trustees expect to reach at a given future date, and the investments they intend to hold at that date. It will therefore set out the future investment strategy and de-risking plans of the scheme. However, unlike the investment principles set out in the SIP, for most schemes this new strategy needs to be agreed with the employer.

This new strategy is expected to be broadly the same as the Long Term Objective, which is the focus of the Regulator’s new draft of the DB Funding Code of Practice. Once a scheme reaches this Long Term Objective it should be fully funded on a basis consistent with a low level of dependency on its employer, and with an investment strategy that is highly resilient to risk. This target, and how the funding and investment strategy says the scheme will get there, is going to be crucial to the future operation of the scheme.

So, how does this new strategy, and the need for it to be agreed with the employer, sit with the Statement of Investment Principles and the trustees’ current control over investment matters? The Government has said that it is not its intention to require employers to agree investment decisions, but this view appears to be based on an unrealistic belief that there is a clear distinction between investment strategy and investment decisions. How does this distinction work in practice? Will trustees now need to agree with the employer how much risk they are going to run in their investments? Will the trustees no longer have the unilateral power to de-risk their investments? Will employer consent be required for a buy-in or a longevity swap?

We need to wait for the final Bill and related regulations before we know the answer to these questions, but it seems quite possible that the answer to each one will be ‘yes’. Whilst trustees will probably keep control over things like asset class allocation, investment manager selection and investor activism, it seems that employers are going to get a bigger say in the really important, strategic investment decisions.