In July the DWP and HM Treasury published a call for evidence on pension trustee skills, capability and culture.  This was one of a group of documents published in connection with the Government's wider agenda to increase investment in alternative assets including high growth businesses.  The call for evidence is divided into three chapters: "Trustee skills and capability"; "The role of advice"; and "Barriers to trustee effectiveness".

The chapter on trustee skills and capability asks whether trustees currently meet the knowledge and understanding (TKU) requirements expected of them and suggests that there is not enough widespread knowledge among pension scheme trustees to engage effectively with alternative assets such as property, infrastructure, private equity and private debt.  Other questions asked include:

• whether current trustee accreditation frameworks provide a high enough bar to equip accredited trustees to properly fulfil their role, including in relation to making investment decisions;
• if each scheme is required to have a certain proportion of accredited trustees, where the bar should be set; and
• whether there should be mandatory accreditation for professional trustees.

The chapter on the role of advice focuses in particular on how the advice provided to trustees impacts their decisions as to whether to invest in unlisted equities.  The questions it asks include:

• what changes could be made, including to the regulatory environment, to improve trustee support in relation to unlisted equities;
• whether there is a deficiency of expertise on the part of investment consultants in relation to unlisted equities; and
• how legal advice impacts on investment decisions.

The chapter on barriers to trustee effectiveness acknowledges that investment decisions are a matter for trustees in line with their fiduciary duty to manage risk and reward in members' best interests.  However, the Government expresses concern that there may be a "risk averse culture" in the application of this duty or even "a perception that fiduciary duty means capital preservation at all costs".  Questions asked include:

• Do trustees currently make investment decisions in the long-term interests of pension savers?  If not, what barriers are there to trustees making investment decisions in the long-term interests of savers?
• Do "those actors who have most influence on advice to trustees on long-term investment decisions" experience any challenges or barriers in providing advice on illiquid assets?  If so, what would "unblock" this?
• Do lay trustees and professional trustees have enough time and support to perform their duties effectively?  If not, what changes would support this?

The call for evidence closes on 5 September 2023.

Our thoughts

The tenor of the call for evidence is that the Government has an appetite for removing unnecessary barriers to investment by pension schemes in alternative assets which may involve taking higher risk in the pursuit of higher rewards.  In relation to defined benefit scheme investment, there could be potential for tension between the Government's key messages and those of the Pensions Regulator (TPR).  For example, TPR's key messages in its annual funding statement place significant emphasis on reducing investment risk.  TPR also reminds trustees seeking buy-out that, given capacity constraints in the buy-out market, trustees should consider whether their investments are in the type of assets preferred by insurance companies.