The implementation statement requirements that come into effect on 1 October 2020 will affect most schemes with 100+ members within the following 12 months, and the new duty presents some particular challenges. First, schemes need to understand the content (which varies between scheme types), and timing. Secondly, the statement requires a different approach from some other forms of reporting: for example, trustees are required to ‘set out their opinion’ on specified issues and to describe voting patterns.
Many trustees are finding it hard to know how to approach drafting their first statement, so here’s an overview of the requirements and some questions to help you get started, and to identify areas (for example on voting and engagement activities) where you may need more information.
The requirements in a nutshell
>Trustees of most schemes with 100 or more members must include an implementation statement when they publish the scheme’s annual report in the 12-month period starting on 1 October 2020.
>The content requirements differ between Defined Contribution (DC)/hybrid schemes and pure Defined Benefit (DB) schemes, but the statement must set out information about how the trustees have put their statement of investment principles (SIP) into practice, particularly in relation to stewardship and engagement.
> Trustees must also publish the implementation statement online and tell members about its availability.
|Relevant schemes with 100+ members: a ‘whole SIP’ implementation statement||DB or DB+AVC schemes with 100+ members: an ‘engagement policy’ implementation statement|
|The statement must set out how, and the extent to which, in the opinion of the trustees|
|the SIP (including the policy on voting and engagement)||their policy on the exercise of rights (including voting rights) attaching to investments, and engagement activities|
|has been followed during the year, and also:|
|• Describe any review of the SIP and how it has been met; if no formal SIP review in-year, provide date of last review
• Explain any changes to the SIP during the year and the reason for them; and
|Describe the voting behaviour by, or on behalf of, the trustees (including the most significant votes cast), and state any use of the services of a proxy voter during the year.|
When do these requirements take effect?
From 1 October 2020, the next scheme annual report to be published must include the implementation statement. For example, the trustees of a relevant scheme with a year end in June 2020 will have to ensure that the SIP is updated by 1 October 2020 and should draft an implementation statement for publication in the accounts by the end of January 2021.
The implementation statement must also be made publicly available, free of charge, on a website, and must be accessible, searchable and downloadable. Relevant schemes must give details of the web address to members in the annual benefit statement in the same way as for
the charges and governance statement. Other schemes must provide a notification about the provision of new information on a website in the normal way.
Questions to help you get started The Pension Regulator’s (TPR’s) guidance states that:
The purpose of the report is to help ensure that ‘action follows intent’ as far as possible. The process of having to consider the content of the report will help to focus trustees’ minds on how well their investment policies and stewardship arrangements are delivering against their scheme’s agreed investment principles.
|Suggested content||Relevant schemes||Other schemes|
|Look at each action set out in the SIP with a timeframe attached. Have you done what you said you would? If not, why not?||Y||Engagement policy only|
|Look at the investment objectives described in the SIP. Have they been met? If not, what did/will you do as a result?||Y||N|
|Has there been a review during the year of the SIP or of investment activity against the SIP? Describe that review or give the date of the last review.||Y||N|
|If your investment decisions have deviated from policy during the year, what was the reason, and what will you do to address this?||Y||Engagement policy only|
|Has the SIP been amended during the year? What changes were made and why?||Y||N|
|Have there been any events during the year (such as the selection process for a new investment manager) that would be relevant useful information for members?||Y||Engagement policy only|
|What quantitative information are you able to provide about the scheme’s voting frequency/approach during the year?||Y||Y|
|What ‘significant votes’ should you report on? A starting point might be issues covered in the PLSA Stewardship Guide and Voting Guidelines.||Y||Y|
|Proxy voting services – how have you used these services during the year?||Y||Y|
By Neil Bowden
Partner – Allen & Overy