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Government sets out voluntary code for pension fund investment

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The Government today issued a revised set of principles of investment for pension funds, following consultation. It also issued its official response to the Myners review of institutional investment, which gives some updates on how the Government and other organisations are taking forward the recommendations of the review.

The principles of investment were proposed by the Myners review of institutional investment. There are two short codes of principles, one for defined benefit pension schemes and one for defined contribution schemes. Pension funds will be encouraged both to adopt the principles as best practice, and to explain where an alternative approach has been taken.

In order to comply with the principles, a fund would need to take measures such as:

  • Set an overall investment objective linked to the fund's liabilities;
  • Ensure that those taking investment decisions have the skill and information to do so;
  • Agree clear mandates with their fund managers, including a timescale over which managers' performance will be measured.

The principles have also been revised to take account of the Government's proposals on transaction costs published in July.

Economic Secretary Ruth Kelly MP said. "It is clear that the pensions industry needs to change the way it deals with investment issues. But the best way for this to happen is for the industry itself to take action voluntarily. The principles of investment are intended to be a short common-sense guide to this process of change."

The response to the Myners review confirms the Government's intention to legislate on two issues:

  • to raise the standard of care required of trustees and;
  • making intervention in investee companies, when in shareholders' and beneficiaries' interests, a duty for trustees and fund managers.

The response also gives some further details of the assessment of progress that will be carried out in March 2003. This is to determine how successful the principles of investment and other measures proposed by the Myners review have been in driving change in the pensions industry.

Minister for Pensions Ian McCartney said "The Government is very grateful to Paul Myners for his work on the review. We feel that it contributes significantly to the debate in encouraging diversity in investment approaches, particularly in how he sees the future role of trustees. In addition we see the principles of investment as important tools in providing transparency for scheme beneficiaries.

We have already said that we will take forward all of the review's conclusions. We and other organisations are making good progress in this task"

As announced by the Government on July 27th, Paul Myners is also issuing today a set of ten questions which pension fund trustees can use to help them understand the issue of transaction costs.

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