Whilst it is too early to tell what the full implications of the Brexit vote will be, we have had a number of enquiries from clients asking what their duties are in relation to their investment strategy. We have therefore set out some general guidelines for action now and in the short to medium term.

What duties do trustees have in these circumstances?

Under trust law, trustees are required to monitor and periodically review the investment strategy for the pension plan. In particular, trustees are expected to carry out a review of their Statement of Investment Principles where there is a material change in circumstances, either in the scheme or in the broader economy.

Our view is that with increased levels of volatility in markets already obvious, it would be sensible for trustees to classify the Brexit vote as a material change in circumstances, in order to protect themselves from future challenge. Don’t forget that defined contribution members are as likely (if not more likely) to raise queries with trustees about the actions they have taken in response to the Brexit vote, especially if they are nearing retirement and have to take short term decisions.

The implications of Brexit are impossible to judge at this stage. What can trustees do at present?

Short term volatility control measures aside, trustees should consider putting in place a plan for dealing with the longer term consequences of the Brexit vote. For example, if trustees conclude that no changes should be made to the investment strategy at present, they could schedule a further review meeting for September (when the new Government is expected to be in place), or for some other date that they consider appropriate.

We also recommend that trustees consider contacting their investment managers now to ask them what their plans are for dealing with Brexit. How, for instance, are overseas portfolios managing sterling currency risk? What plans do managers have to address any further reduction in gilt yields or cuts in interest rates? Similar questions should be put to investment consultants given their role in advising the trustees on overall asset allocation strategy.

Where the managers have Brexit procedures and policies in place, trustees should ask for copies of these documents (to the extent that the managers are willing to disclose them). Trustees may then wish to discuss with their investment consultant whether they consider their managers’ plans to be adequate.

Trustees’ risk registers should be appropriately updated to record any measures taken and manager/investment adviser responses.

What if one of the scheme’s UK investment managers announces plans to relocate operations in the wake of the Brexit vote?

In these circumstances, trustees should ask their manager how, if at all, this will affect the delivery of services to the trustees. If there will be a change in key personnel and/or critical back office personnel, or the change will involve a major upheaval to the manager’s operations, trustees may want to discuss with their investment consultant whether further due diligence on the manager is required.

Trustees may also want to consider whether the move will in itself trigger a review of the manager. Whilst it would be improper for trustees to act on the basis of their political views or a desire to protect the UK economy, legitimate questions to ask the manager would include whether there will be a reduction in regulatory protection for investors and whether the trustees will enjoy the same access to key individuals who are no longer based locally.

Changes may be also be required to investment documentation. Trustees should carefully consider the implications of such changes, taking advice where appropriate, before signing any variations to existing documents.