Across the UK pensions landscape, there’s a growing sense of unease. Trustees and advisers are being asked to make investments that benefit not just their members but the UK economy more broadly. Yet many perceive a tension here and feel unsure about the legal foundations underpinning these decisions.
It’s not that schemes and trustees don’t want to support better UK housing, clean energy, stronger infrastructure and healthier communities. Plenty do. But they want comfort that attention to these factors is legally bona fide. Schemes are operating within a framework of legal uncertainty – particularly regarding fiduciary duty. And this problem stems from the fact neither case law nor statute has kept up with the world trustees are now expected to navigate.
This isn’t just a technical legal issue. It’s a practical barrier to progress. Investment duties for pension trustees are mostly shaped by case law, much of it over a century old. While this remains important, the key relevant judgements were not designed with today’s complex financial systems in mind, nor systemic risks, like climate change, that characterise modern capital markets.
As a result, trustees are left guessing. Can they consider climate breakdown, public health or macroeconomic resilience as part of their duty to act in members’ best interests? Can they focus on improving standards of living of scheme members, not just the size of their pot?
Too often, the answers trustees receive from legal advisers vary – and with good reason. The law itself is unclear. And where uncertainty exists, caution wins.
This is where the Pension Schemes Bill presents a rare opportunity: not to dictate what schemes must do, but to unlock what they are already willing, and increasingly eager, to consider in serving members’ best interests over the long term.
We’re calling for the Pension Schemes Bill to include a simple statutory clarification: one that confirms schemes have a duty to manage system-level risks just like any other financial risk, and that they may take account of members’ standards of living, the wider impacts of the firms they invest in, and members’ views.
This change wouldn’t replace fiduciary duties – it would strengthen them and give trustees more discretion and legal comfort as they make investment decisions. No-one would tell schemes how to invest – but the law would clarify what’s possible.
There’s no shortage of appetite for this shift. Trustees, pension executives, investment consultants and lawyers have all been involved in conversations shaping this proposal to amend the Pension Schemes Bill. Many are already adopting a more holistic and responsible investment practice that pays attention to the communities and economies where members live. But without clear legal permission, schemes can be left in limbo.
Fiduciaries shouldn’t be boxed in by outdated interpretations of the law. They deserve the clarity and confidence to act in ways that align long-term financial value with a positive future for people and planet.
Clarifying fiduciary duty would also open the door to a greater focus on UK investment, without resorting to blunt tools like government direction.
Allowing trustees to consider standards of living means they could better assess the real value of a pension — taking into account access to affordable housing, quality healthcare and functioning local infrastructure, not just the numbers on an annual pensions statement.
Recognising the need to consider and manage systemic risks could encourage investment that supports a more stable financial environment overall. Low-carbon energy assets and resilient supply chains are important to consider as they can generates financial returns and reduce volatility across portfolios.
This isn’t about forcing schemes to make specific investments. It’s about removing legal blockers and creating space for leadership, innovation, and alignment with members’ interests.
If Government is serious about unlocking investment for productive growth, then legislative clarity on fiduciary duties is a critical missing link in the chain. Amending the Pension Schemes Bill to include a statutory clarification of fiduciary duties is a low-cost, high-impact step that would empower schemes to invest more confidently, more responsibly, and more productively on behalf of their members.