NAPF responds to the Law Commission's Review of Fiduciary Duties of investment intermediaries | PLSA
NAPF responds to the Law Commission's Review of Fiduciary Duties of investment intermediaries

NAPF responds to the Law Commission's Review of Fiduciary Duties of investment intermediaries

22 January 2014

The National Association of Pension Funds (NAPF) today (Wednesday) responded to the Law Commission’s review of fiduciary duties of investment intermediaries.

Trustee’s fiduciary duty – ESG and Stewardship

The NAPF welcomes the debate concerning fiduciary duty started by the Kay report.  It is helpful in clarifying the role of fiduciary concepts in pension scheme management. The NAPF is, however, unconvinced that providing more clarity through statute, for example by imposing a more explicit duty to consider specific factors when devising an investment strategy, would be beneficial.

Will Pomroy, policy lead on Stewardship, NAPF, said:  “Pension fund trustees already have a good grasp of their fiduciary duties and understand that their duty is to act in the best interests of members to provide an income in retirement.  This does not limit trustees’ responsibilities solely to financial interests. The law as it is currently understood allows trustees to use their judgement and discretion appropriately. This flexibility extends to the consideration of environmental, social and governance (ESG) factors and to the fulfilment of their stewardship responsibilities as set out within the UK Stewardship Code.”

In its response the NAPF notes that most pension funds delegate the consideration of ESG factors and stewardship activities to their investment managers. In turn, these investment managers owe a duty of care to their clients to consider adequately these issues and take appropriate action in line with the agreed investment strategy.

To help clarify this area the NAPF suggests the Law Commission considers writing an open letter to trustees and investment intermediaries summarising the key conclusions. In addition, the NAPF proposes considering evolving the existing pension’s disclosure requirements to distinguish more clearly purely ethical concerns from those such as ESG factors that are, at heart, financial in nature.

Contract-based pensions

The NAPF recommends that further thought be given to how long-term products like pensions savings vehicles are governed and regulated. In the first instance, the NAPF suggests that greater emphasis should be put on the provider's responsibility to be as transparent as possible about those things that matter most to the consumer - e.g. charges - and to communicate these clearly and effectively.  
The NAPF explains that it is not convinced that Independent Governance Committees at the provider level, as recommended by the OFT, will be as effective as scheme level governance (e.g. trustee bodies) to support pension savers.

Will Pomroy, added:  “There is widespread agreement that a governance vacuum in contract-based pension arrangements can lead to unsatisfactory outcomes for members but the assignment of a fiduciary duty would not improve the situation. The issues relating to contract-based schemes could be better addressed through clear standards of conduct applicable to employers and providers in those areas in which they exercise discretion.

The NAPF suggests that that good governance of pension arrangements is a logical extension of the employer’s current legal duty of good faith. As such, the NAPF recommends that employers, as the ultimate decision makers in appointing workplace pension schemes, are given the obligation to put in place a governance arrangement to support the interests of pension savers.

Will Pomroy, commented:  “No other party can match the powers that trustees have as owners of the assets. If, Independence Governance Committees are to be formed, we believe that they should be constituted of and act primarily on behalf of the employers. Employers, as the purchasers, have responsibility for bringing in pension arrangements that offer value for money and have the most influence over the provider. For these reasons employers are best placed to ensure providers deliver what is promised. This arrangement would create a clearer chain of accountability from saver through to their investment managers and the relevant duties of each party would be better aligned.”

A copy of the NAPF submission can be found on the NAPF website here.


Notes to editors:

1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.


Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]
Aimee Savage Richards, Press Officer (interim), 020 7601 1718 or 07825 171 446, [email protected] 


Navigate to ...