UK Government publishes draft guidance on trustees' investment duties

The Government has today published draft guidance on trustees’ investment duties for consultation. The guidance is not intended to introduce new duties or alter existing legal obligations. Rather, it is intended to provide increased clarity in and confidence about what the law in practice requires and permits in today’s circumstances. Having said that, as the guidance recognises, some areas that it addresses have not been considered by the Courts which means there is no current legal precedent which can be followed, although there are legal principles to draw on (albeit these may not be agreed by all). 

The guidance is designed to help trustees in applying legal principles to contemporary investment questions, and to be used by them in making well-informed investment decisions. It covers a number of important areas, including: 

• the factors trustees can (and in some cases should) take into account when making investment decisions 

• the time horizons over which investment risks and the consequences of investment decisions should be considered, and 

• the extent to which trustees can (or ought) to take account of members’ views

The consultation closes on 27 January 2027, giving pension scheme trustees and other interested stakeholders an opportunity to share their views on these important topics. The Government’s aim is to publish the final version in April 2027. 

While the draft guidance is directed primarily at trustees of occupational pension schemes, it may be informative to others who are subject to fiduciary duties in relation to investment, including administering authorities of LGPS funds, and to others who invest funds on behalf of pension scheme members. Pension scheme sponsors will also have an interest in this. It is expected that further industry guidance will also be issued in due course, aimed at supporting professional advisers who advise pension scheme trustees in this area. 

Why has this guidance been published? 

The draft guidance seeks to identify and explain the duties to which trustees of occupational pension schemes are subject when setting and reviewing their scheme’s investment strategy and when arranging and monitoring the implementation of that strategy. 

The Law Commission’s Reports of the mid-2010s and the paper published in 2024 by the Working Group of the Financial Markets Law Committee each moved the industry forward in their own ways – and this guidance is intended to do so again by addressing the full spectrum of relevant issues and applying them to schemes in the current day and age. 

There were calls for the government to clarify the law in this area in the Pension Schemes Act 2026. However, the government decided against that and instead committed to producing guidance for trustees to clarify their duties in this area. 

Who has drafted it? 

The draft guidance has been produced by Sir Robin Knowles CBE (who also chaired the FMLC Working Group), with support from a group of industry experts on investment who have been identified and convened by the Department for Work and Pensions and who have met with Sir Robin across the spring, summer and autumn of this year. We have been part of that group and contributed to those discussions. A range of different views have been expressed by participants and the draft guidance attempts to reflects those as best it can.

What does it say?

The draft guidance covers a number of important areas. We will produce more detailed analysis in due course, but some of the most significant points contained in the draft guidance are: 

• Helpfully, it recognises that trustees are entitled to take a practical and proportionate approach, having regard to the circumstances of their scheme. It also acknowledges that investment decisions are complex and involve the exercise of trustee judgement – as a result, it is helpfully recognised that the decisions of one trustee board may differ from that of another without either being incorrect

• Pension fund trustees are, broadly speaking, not judged in hindsight, and nor are advisers. Nor are pension trustees expected to have perfect foresight when making complex decisions about investment

• Trustees should have confidence that they can consider long-term, systemic and qualitative financially material considerations when making investment decisions. As well as considering financially material risks and opportunities at asset level, a broader system-level or economy-level lens may also be needed (where this is available and proportionate)

• Trustees may need to have regard to investment risks and the consequences of their decisions over the lifetime of the scheme and also over the lifetime of the members – in our experience, however, few trustees currently consider investment risk over the lifetime of members

• Future costs and circumstances of living for members may be taken into account if and where trustees reasonably conclude that there is a credible connection between an investment decision and member retirement outcomes. For many schemes this is likely to be challenging as showing a sufficiently proximate link between an investment decision and a particular improvement to members’ broader living circumstances may be difficult

• Sustainability, as a financially material consideration in the context of reducing risk or improving returns, is integral to decision-making by pension fund trustees. The guidance recognises there can be different usages of this term

• Trustees are not required to seek members’ views on investment strategy or other aspects of investment decision-making. They are however entitled to do so. Where they do seek members’ views that does not mean they must follow those views or give them weight. In our view, trustees should approach this cautiously as trustees are unlikely to be able to rely on the outcome of any survey and will need to carefully consider the cost and benefit of reaching out to members in this way

• Trustees ought to consider the providers’ / insurers’ investment strategy and approach when deciding whether to transfer to a master trust or to agree to a “buy-in” and “buy-out”. This would also logically extend to decisions to transfer to superfunds or other consolidation vehicles

Significantly, the draft guidance does not distinguish between investment decisions in the context of defined benefit, defined contribution (DC) and collective DC schemes. In addition, while it recognises that trustees of occupational pension schemes are required to consult with the scheme employer on their investment strategy in certain circumstances, it does not cover how an employer’s views ought to be taken into account. These are points we hope will be addressed in the final version. 

Comment 

Investment decision-making can be a difficult area for trustees to navigate in ever complex and evolving conditions and in the context of their scheme’s long-term time horizon.  It is also an area in which there is a relatively small amount of legislation, regulation and decided case law for trustees and their advisers to refer to and rely on when undertaking their work in respect of modern-day pension schemes and so reference needs to be made to fundamental legal principles.

Now that the draft guidance has been published there is an important opportunity for trustees and other interested parties to share their views. In some areas, the guidance provides helpful clarity and comfort for trustees, in others it may mark a departure from trustees’ existing approach. 

In our view, it is important that the final guidance is permissive, as far as possible, recognising that different approaches and decisions can legitimately be taken by different trustee boards in different contexts. It is also important that the final guidance does not require or pressure trustees to take a particular approach or prescribe that certain specific factors are taken into account where the law does not clearly require this. 

We will be responding to the consultation in due course and contributing to the responses that will be prepared by the industry groups with which we are involved. We would encourage you to do the same.

Webinar

Pensions topical issues webinar - Navigating the pensions roadmap: What you need to know now
Date: 19.11.2026 
Time: 12:00pm - 1:00pm GMT
Join us for our webinar where we will be discussing the impact of the government's guidance on trustees' investment duties.

Register now