It is reasonable for pension scheme trustees to take into account members’ future standard of living in retirement when making investment decisions, legal advice shared by Natwest Cushon and Eversheds Sutherland has suggested.

The legal interpretation, which was shared at an event at Mansion House yesterday (5 March), is intended to increase trustees’ ability to allocate assets to private markets in the UK and so support the UK growth agenda.

Natwest Cushon and Eversheds Sutherland pointed out that current fiduciary duty guidance implies trustees should be cautious, and generally invest to target the best long-term risk adjusted returns – as measured by members' likely pot sizes, or by the likely level of income the pot can secure.

However, the new legal interpretation from the pair suggested that many other factors may impact members’ financial position and their ability to access a sustainable retirement income and enjoy a dignified retirement.

For example, the standard of healthcare, social care, access to clean energy, levels of infrastructure and a vibrant economy and the strong tax base it brings, all of which impacts members' standard of living in retirement.

Industry experts had also previously raised concerns over the way fiduciary duty is being interpreted, with mixed views as to whether legal changes would be needed in order to allow trustees to consider wider issues in their decision making, such as climate change.

But Eversheds Sutherland partner and head of DC, Michael Jones, suggested that the law is it currently stands is " sufficiently broad, flexible and permissive for trustees, in the right circumstances, to take a wider and more holistic view of sustainability".

Given this, the two companies suggested that the new fiduciary duty legal interpretation has scope to change the way trustees make investment decisions, providing further clarification on how pension trustees can take factors such as living standards into account.

"We are delighted to work with NatWest Cushon and the trustees of the Cushon Master Trust on this exciting and groundbreaking opinion," Jones stated.

"Trustees still need to take their own professional advice and be satisfied with the robustness of investment case and weighting of quantitative and qualitative analysis.

"But the permissive legal framework is the foundation for trustees to consider a wide range of investment opportunities in the UK.”

This could also allow pension schemes to make more investment in the UK, as Natwest Cushon strategic adviser, Julius Pursaill, said that the 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."

This was echoed by Pensions Minister, Torsten Bell, who added: “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.”

Adding to this, Cushon Master Trust trustee, Katie Blacklock, said: “Fiduciary duty is a dynamic concept and, as trustees, we need to continuously assess the purpose of our investment powers and how best to exercise them.

"Doing so prudently doesn't simply equate to doing the same thing. This 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.

"It provides a well-considered and workable framework, grounded in existing trust law, against which we can test our investment decision-making processes.”

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