Draft guidance sets out how pension trustees can weigh long-term risks when investing
The Department for Work and Pensions is consulting until late January 2027 on guidance that explains trustees' existing fiduciary duties, from climate and AI to members' future cost of living. It does not change the law.
Trustees of workplace pension schemes have been given draft guidance that brings together, in a single reference document, what the law expects of them when they invest members' money. The Department for Work and Pensions opened a 12-week consultation on it on Thursday 5 November, running until late January 2027.
The draft was written by an independent technical working group chaired by Sir Robin Knowles CBE, with members drawn from pension schemes, law firms, actuaries, investment consultants and sustainable finance groups, and a wider advisory group alongside it. The government had committed to consider the issue during the passage of the Pension Schemes Act 2026.
The DWP says the document creates no new legal duty, changes no existing one and adds no new disclosure or reporting requirements. The consultation is not asking whether trustees' duties should change, only whether the draft explains the current position accurately and in a way trustees can use.
Financially material considerations
At its core is a long-standing distinction. Trustees must identify and take account of financially material considerations, meaning anything reasonably capable of affecting risk, return, outcome or opportunity for the fund. The draft says these can be direct or indirect, certain or uncertain, and can arise at the level of a single investment, the portfolio, the wider economy or the financial system as a whole. It names climate, economies, inequality and technology among the system-level developments that can matter.
Two further passages set out narrower points:
- Future costs of living. The draft says trustees may take account of members' future costs and circumstances of living where they reasonably see a credible connection between an investment decision and members' retirement outcomes. Trustees are not expected to look at this for every decision, and may decide it would be disproportionate.
- Non-financial matters. These are relevant only in limited circumstances, and trustees are advised to take advice when one arises. The draft repeats the Law Commission's two tests: trustees should have good reason to think members would share the concern, and the decision should not risk significant financial detriment to the fund.
The draft also covers stewardship and collective action. Where a risk has a system-level dimension that one fund cannot tackle alone, trustees may consider proportionate collaboration with other investors. Trustees are entitled to ask members for their views but do not have to seek them, follow them or give them weight.
The draft puts weight on process. Different boards may reasonably reach different decisions on the same facts, the draft says, and trustees who follow and record a careful process that takes account of all relevant matters can be reassured that their decision is legally sound. They are not expected to show they have considered every conceivable factor.
Worked examples
An annex gives eight short scenarios. In one, trustees decide that low-cost quarterly reporting from their managers is not enough for them to meet their duties. Another has trustees asking whether climate change or nature is financially material to their fund, where either answer needs reasons. A third looks at AI over the time horizons that matter for paying pensions, including its effects on the wider economy, and agrees how to keep the position under review.
Responses and final guidance
Responses go through an online form, which can be completed anonymously, and further evidence can be emailed to investment.fiduciaryduty@dwp.gov.uk. The consultation covers Great Britain and also informs the Department for Communities in Northern Ireland.
The government expects to publish its response alongside final guidance, which will be non-statutory. Once it is final, trustees and their advisers will be expected to have regard to it where it is relevant. The DWP says it will also consider placing the guidance on a statutory footing when a suitable legislative opportunity arises.
