UK growth investing can fit with fiduciary duty, law firm says

Law firm Eversheds Sutherland and master trust provider NatWest Cushon have worked together on the legal advice and presented it at an event yesterday (5 March). 

The organisations said the current legal framework around fiduciary duty supported a “wide and long-term view of sustainability”. 

They argued that the interpretation could also increases trustees’ ability to allocate to private market assets – and support the UK government’s growth agenda. 

Michael Jones, partner and head of defined contribution at Eversheds Sutherland, said current law was “sufficiently broad, flexible and permissive” for trustees to take a “wider and more holistic view of sustainability”. 

He emphasised that trustees still need to take their own advice to ensure they are comfortable with investment decisions, but the existing legal framework was “the foundation for trustees to consider a wide range of investment opportunities in the UK”. 

“Pension scheme trustees have a fiduciary duty to secure good outcomes for members. That duty supports, rather than undermines, the case for investing in a broad range of assets and for investing in the UK.”

Torsten Bell

Fiduciary duty for defined contribution pension schemes requires trustees to target the best long-term risk-adjusted returns. Success is generally measured by the size of members’ pension pots and the level of retirement income they can achieve. 

NatWest Cushon and Eversheds Sutherland’s work clarified how trustees can also consider factors such as healthcare, access to clean energy, infrastructure and the future economic environment as they relate to members’ finances and “their ability to access a sustainable retirement income and enjoy a dignified retirement”.  

However, the firms emphasised that an individual scheme’s legal position was likely to depend on scheme-specific factors such as scale, investment horizon and demographics. 

The ‘dynamic concept’ of fiduciary duty

Julius Pursaill, a strategic adviser to NatWest Cushon, said: “It’s always seemed to me to be unreasonable that trustees should feel obliged to create societal infrastructure across Asia, Australia, the Americas and continental Europe rather than focus on creating it in the UK. 

“The Eversheds opinion makes it clear that, to the extent it impacts members’ standards of living in retirement, trustees can create that societal infrastructure in the UK.” 

Katie Blacklock, trustee of the Cushon Master Trust, added that fiduciary duty was a “dynamic concept” that required trustees to “continuously assess” how best to invest their scheme’s assets. 

The Eversheds advice “broadens our understanding of member interest and extends the scope of what we might consider a financial factor to include standard of living in retirement”, Blacklock said. “It provides a well-considered and workable framework, grounded in existing trust law, against which we can test our investment decision-making processes.” 

Torsten Bell, the pensions minister, said: “Pension scheme trustees have a fiduciary duty to secure good outcomes for members. That duty supports, rather than undermines, the case for investing in a broad range of assets and for investing in the UK.”