HM Treasury, the DWP and the Pensions Regulator have published a response to their joint consultation on updating the Myners principles on institutional investments (see Pensions Update, April 2008). The consultation document generally endorsed the NAPF's November 2007 review of the Myners principles (see Pensions Update, November 2007).
The government reported that the majority of respondents supported its proposals. In particular, respondents supported the proposal to reduce the number of principles from ten to six higher-level, less prescriptive, principles, suggesting only minor drafting changes. The government has made a small number of changes of emphasis but the substance of the proposed principles remains unchanged. The proposed updated principles are:
- effective decision making - decisions must be taken by those with the necessary skills, knowledge, advice and resources; trustees should have sufficient expertise to be able to evaluate and challenge the advice they receive, and manage conflicts of interest
- clear objectives - investment objectives must be determined by reference to each scheme's liabilities, strength of employer covenant and attitude to risk
- risk and liabilities - trustees should take account of the form and structure of their scheme's liabilities, including the strength of the employer covenant, the risk of employer default and longevity risk
- performance assessment - trustees should arrange formal performance measurement of investments, fund managers and advisers and periodically review their own effectiveness as a decision-making body and report on this to members
- responsible ownership - trustees should adopt the Institutional Shareholders' Committee (ISC) Statement of Principles on the responsibilities of shareholders and agents; explain their policy on responsible ownership in their statement of investment principles and periodically report to members on the discharge of these responsibilities
- transparency and reporting - trustees should communicate with stakeholders on investment management, governance and risk, including performance against stated objectives and should regularly report to members in the form they consider most appropriate.
The principles will be linked to "a body of higher quality, more selective and more accessible guidance and trustee tools" (see Appendix A to the response).
The Investment Governance Group (IGG), a joint government and industry body to be co-sponsored by HMT and the DWP and chaired by the Pensions Regulator, will be set up to "own" the updated principles, monitor their effectiveness and recommend improvements. Among the issues it will be asked to consider are:
- brief and practical guidance on the location and content of reporting by trustees (without inhibiting
- trustees' flexibility to inform members in the manner they think most effective
- the need to update the Myners principles for defined contribution schemes
- how to implement them more effectively for small schemes and
- how to update the guidance for the LGPS.
The principles will continue to be enforced by way of a voluntary "comply or explain" framework.