The Short Answer
A Statement of Investment Principles, universally called the SIP, is a written statement of the investment principles governing decisions about a pension scheme's investments. It is required by section 35 of the Pensions Act 1995, and its detailed content is set out in the Occupational Pension Schemes (Investment) Regulations 2005 as amended.
It is a trustee document. Trustees must secure that it is prepared, maintained, reviewed and where necessary revised, and no adviser or employer can take that responsibility off them.
Which Schemes Need One
Most trust-based occupational schemes, defined benefit and defined contribution alike. Two categories are exempt from the section 35 duty: schemes with fewer than 100 members, and schemes established by or under an enactment and guaranteed by a public authority.
Exemption from the duty is not the same as the document being pointless. The Pensions Regulator treats a SIP, or something equivalent to one, as good practice for smaller schemes even where the law does not require it, and trustees who need to explain their investment approach to a member or a new board colleague generally find it easier when it is written down.
Note the threshold is precise. A scheme with 120 members is inside the duty and a scheme with 90 members is outside it, and there is no proportionality dial in between.
Who Prepares It, and the Two Steps Before
Before preparing or revising a SIP, trustees must do two things.
Obtain and consider written advice from a person the trustees reasonably believe is qualified by ability in and practical experience of financial matters, and who has appropriate knowledge and experience of the investment management of schemes of that kind. General financial expertise does not meet that test, and it should not be assumed that the scheme actuary does either. Valuing liabilities and managing investments are different skill sets.
Consult the employer. This is where a great many people, and a great many exam candidates, go wrong. Consulting is not obtaining consent. Trustees must seek and consider the employer's views, and the decision remains theirs.
The statute is unusually blunt about this. Section 35(5) provides that neither the scheme's rules nor the SIP itself may make the trustees' investment powers subject to the employer's consent. A clause purporting to do so does not work. So if a sponsoring employer tells a trustee board that it will not agree to a proposed change in strategy, the board should record the view, weigh it, and then decide.
Failure to comply with the section 35 duties brings the civil penalty regime in section 10 of the Pensions Act 1995 into play, and it applies to any trustee who failed to take all reasonable steps to secure compliance rather than only to whoever was responsible for drafting.
What the SIP Must Contain
The regulations require the SIP to set out the trustees' policies on a defined list of matters. In general terms those are:
- The kinds of investments to be held
- The balance between different kinds of investments
- Risk, including how risks are measured and managed
- The expected return on investments
- The realisation of investments
- How the investment policy takes account of the nature and duration of the scheme's liabilities
- Financially material considerations, which are expressed to include, without being limited to, environmental, social and governance considerations including climate change, over the time horizon the trustees consider appropriate
- Non-financial matters, meaning the extent, if at all, to which the views of members and beneficiaries are taken into account
- Stewardship, covering the exercise of rights including voting rights, and engagement with investee companies on matters such as performance, strategy, capital structure, conflicts of interest, risk, social and environmental impact and corporate governance
- Asset manager arrangements, covering how those arrangements incentivise alignment with the SIP, how manager performance and portfolio turnover costs are evaluated, and how long the arrangement is expected to run
Schemes with a default arrangement carry additional requirements. The SIP for the default must state its aims and objectives, explain how the strategy is intended to ensure assets are invested in the best interests of relevant members and beneficiaries, and set out the trustees' policy on illiquid assets, including whether any are held, the member age profile targeted, whether holdings are direct or indirect and what types are held, or an explanation of why none are held.
Financially Material Is Not the Same as Non-Financial
These two items are separate limbs of the requirement and candidates conflate them constantly.
Financially material considerations are factors the trustees think are likely to affect investment risk and return. ESG factors and climate change are expressly included. They must be considered because they bear on the financial outcome, which is consistent with the fiduciary duty to act in beneficiaries' best interests rather than an exception to it.
Non-financial matters are the views of members and beneficiaries on, for example, ethical or environmental impact, and the SIP must state the extent, if at all, to which those views are taken into account. "If at all" is doing real work in that phrasing. A policy of not taking member views into account is a policy, and stating it satisfies the requirement.
What the Law Does Not Require
A useful discipline when reading a real SIP is to separate the statutory content from the drafting conventions that have grown up around it.
The regulations require policy-level statements across the categories above. They do not mandate a numeric strategic asset allocation table, named fund managers, specific benchmarks or precise rebalancing triggers. Plenty of SIPs include all of those and it is often sensible to, and none of it is itself a legal content requirement.
Telling the two apart is a well-worn source of exam questions, because a distractor built from a plausible-sounding but non-mandated item is easy to write and hard to spot.
Objectives Are Not the Same as Asset Allocation
An investment objective is the aim. An asset allocation strategy is the means chosen to pursue it. "60% equities and 40% bonds" describes a strategy, and it is not an objective however confidently it is labelled as one.
How objectives are framed differs sharply by scheme type, which the APT tests directly:
- Defined benefit objectives are liability-relative. They are expressed against the scheme's liabilities, for example matching their duration and inflation sensitivity, targeting a return above a liability benchmark, or following a journey plan towards a long-term goal such as low dependency on the employer or an insurance buy-out. The level of investment risk taken should have regard to the strength of the employer covenant and the time available.
- Defined contribution objectives are member-outcome relative. They are expressed in terms of real growth during accumulation, a risk profile appropriate to the membership, and a glide path that reflects how members are likely to access their pots at retirement.
Matching a described objective to the right scheme type is a standard question shape, and DB-only trustees asked about DC glide paths tend to find it harder than they expect.
Reviewing and Updating
The SIP must be reviewed at least every three years, and without delay after any significant change in investment policy.
Three things about that cycle are worth holding on to.
Reviewing is the mandatory act. A review can properly conclude that no change is needed. What is not permitted is skipping the review because nothing seems to have changed.
Revision re-engages the full process. If a review leads to a revision, the trustees must again obtain and consider written advice and again consult the employer. Revising is not a lighter-touch version of preparing.
Ordinary monitoring is a different thing. Trustees should be watching performance and managers far more often than every three years, typically quarterly. That monitoring is good governance and it is not the statutory SIP review, which has its own triggers. Equally, a routine change of manager within an unchanged strategy will not necessarily amount to a significant change in investment policy requiring an immediate revision.
For DC default arrangements there is an extra limb: as part of the review, trustees must assess whether the investment returns achieved, after the deduction of charges and transaction costs, are consistent with the aims and objectives stated for the default, and must also review following a significant change in the demographic profile of relevant members.
The SIP Is Not the Implementation Statement
These are two documents doing opposite jobs, and conflating them is one of the most common errors in this part of the syllabus.
The SIP states policy prospectively. It says what the trustees will do.
The Implementation Statement reports retrospectively. It is produced annually, published alongside the scheme's annual report and accounts, and describes the extent to which the SIP's policies, in particular the voting and engagement policy, were actually followed during the scheme year. It covers the trustees' voting behaviour, the most significant votes cast by or on their behalf, and any use of a proxy voter. For default arrangements it also covers how the stated aims and objectives were addressed.
Both must be made publicly available online free of charge for schemes required to have a SIP, and referenced in the relevant statutory member communications. That publication requirement is why any trustee can read another scheme's SIP, which is a genuinely useful way of seeing how the content requirements translate into practice.
Where This Sits in the APT
The SIP is one of PMI's seven learning outcomes in its own right, covering the responsibilities for preparing it, its contents, the investment objectives of a fund, the asset allocation strategy and the requirement to monitor and update it. On Trustee Prep that maps to the Statement of Investment Principles within investment for DB and DC schemes.
It is also, for our money, one of the most efficiently examinable areas in the syllabus. The content list is long and precise, the boundaries between requirements are crisp, and the distinctions above (financially material against non-financial, objective against allocation, and SIP against Implementation Statement) are exactly the kind of thing a 60-question paper can test cleanly.
If you are new to the qualification, our guide to the Award in Pension Trusteeship covers the format and the sitting dates, and our post on pension trustee duties covers the fiduciary framework that sits underneath the investment powers.
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Trustee Prep is an independent practice platform and is not affiliated with or endorsed by the Pensions Management Institute, the Association of Professional Pension Trustees or The Pensions Regulator. This post is exam revision and general background, and it is not legal or investment advice on any particular scheme.
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