The Myners Principles
Defined Benefit Pension Schemes
1. Effective decision-making
Decisions should be taken only by persons or organisations with the skills, information and resources necessary to take them effectively. Where trustees elect to take investment decisions, they must have sufficient expertise and appropriate training to be able to evaluate critically any advice they take.
Trustees should ensure that they have sufficient in- house staff to support them in their investment responsibilities. Trustees should also be paid, unless there are specific reasons to the contrary.
It is good practice for trustee boards to have an investment subcommittee to provide the appropriate focus.
Trustees should assess whether they have the right set of skills, both individually and collectively, and the right structures and processes to carry out their role effectively. They should draw up a forward- looking business plan.
2. Clear objectives
Trustees should set out an overall investment objective for the fund that:
· represents their best judgement of what is necessary to meet the fund’s liabilities given their understanding of the contributions likely to be received from employer(s) and employees; and
· takes account of their attitude to risk, specifically their willingness to accept underperformance due to market conditions.
Objectives for the overall fund should not be expressed in terms which have no relationship to the fund’s liabilities, such as performance relative to other pension funds, or to a market index.
3. Focus on asset allocation
Strategic asset allocation decisions should receive a level of attention (and, where relevant, advisory or management fees) that fully reflect the contribution they can make towards achieving the fund’s investment objective. Decision-makers should consider a full range of investment opportunities, not excluding from consideration any major asset class, including private equity. Asset allocation should reflect the fund’s own characteristics, not the average allocation of other funds.
4. Expert advice
Contracts for actuarial services and investment advice should be opened to separate competition. The fund should be prepared to pay sufficient fees for each service to attract a broad range of kinds of potential providers.
5. Explicit mandates
Trustees should agree with both internal and external investment managers an explicit written mandate covering agreement between trustees and managers on:
· An objective, benchmark(s) and risk parameters that together with all the other mandates are coherent with the fund’s aggregate objective and risk tolerances;
· The manager’s approach in attempting to achieve the objective; and
· Clear timescale(s) of measurement and evaluation, such that the mandate will not be terminated before the expiry of the evaluation timescale for underperformance alone.
The mandate and trust deed and rules should not exclude the use of any set of financial instruments, without clear justification in the light of the specific circumstances of the fund.
Trustees, or those to whom they have delegated the task, should have a full understanding of the transaction-related costs they incur, including commissions. They should understand all the options open to them in respect of these costs, and should have an active strategy - whether through direct financial incentives or otherwise - for ensuring that these costs are properly controlled without jeopardising the fund's other objectives.
Trustees should not without good reason permit soft commissions to be paid in respect of their fund’s transactions.
6. Activism
The mandate and trust deed should incorporate the principle of the US Department of
Labor Interpretative Bulletin on activism. Trustees should also ensure that managers have an explicit strategy, elucidating the circumstances in which they will intervene in a company; the approach they will use in doing so; and how they measure the effectiveness of this strategy.
7. Appropriate benchmarks
Trustees should:
· explicitly consider, in consultation with their investment manager(s), whether the index benchmarks they have selected are appropriate; in particular, whether the construction of the index creates incentives to follow sub-optimal investment strategies;
· if setting limits on divergence from an index, ensure that they reflect the approximations involved in index construction and selection;
· consider explicitly for each asset class invested, whether active or passive management would be more appropriate given the efficiency, liquidity and level of transaction costs in the market concerned; and
· where they believe active management has the potential to achieve higher returns, set both targets and risk controls that reflect this, giving the managers the freedom to pursue genuinely active strategies.
8. Performance measurement
Trustees should arrange for measurement of the performance of the fund and make formal assessment of their own procedures and decisions as trustees. They should also arrange for a formal assessment of performance and decision-making delegated to advisers and managers.
9. Transparency
A strengthened Statement of Investment Principles should set out:
· who is taking which decisions and why this structure has been selected;
· the fund’s investment objective;
· the fund’s planned asset allocation strategy, including projected investment returns on each asset class, and how the strategy has been arrived at;
· the mandates given to all advisers and managers; and
· the nature of the fee structures in place for all advisers and managers, and why this set of structures has been selected.
10. Regular reporting
Trustees should publish their Statement of Investment Principles and the results of their monitoring of advisers and managers. They should send key information from these annually to members of these funds, including an explanation of why the fund has chosen to depart from any of these principles.
Defined Contribution Pension Schemes
1. Effective decision-making
Decisions should only be taken by persons or organisations with the skills, information and resources necessary to take them effectively. Where trustees elect to take investment decisions, they must have sufficient expertise and appropriate training to be able to evaluate critically any advice they take.
Where scheme members are given a choice regarding investment issues, sufficient information should be given to them to allow an appropriate choice to be made.
Trustees should ensure that they have sufficient in-house staff to support them in their investment responsibilities. Trustees should also be paid, unless there are specific reasons to the contrary.
It is good practice for trustee boards to have an investment subcommittee to provide appropriate focus.
Trustees should assess whether they have the right set of skills, both individually and collectively, and the right structures and processes to carry out their role effectively. They should draw up a forward- looking business plan.
2. Clear objectives
In selecting funds to offer as options to scheme members, trustees should:
· consider the investment objectives, expected returns, risks and other relevant characteristics of each fund, so that they can publish their assessments of these characteristics for each selected fund; and
· satisfy themselves that they have taken their members’ circumstances into account, and that they are offering a wide enough range of options to satisfy the reasonable return and risk combinations appropriate for most members.
3. Focus on asset allocation
Strategic asset allocation (for example for default and lifestyle options) should receive a level of attention (and, where relevant, advisory or management fees) that fully reflects the contribution they can make to achieving investment objectives. Decision-makers should consider a full range of investment opportunities, not excluding from consideration any major asset class, including private equity.
4. Choice of default fund
Where a fund is offering a default option to members through a customised combination of funds, trustees should make sure that an investment objective is set for the option, including expected returns and risks.
5. Expert advice
Contracts for investment advice should be open to competition, and fee rather than commission based. The scheme should be prepared to pay sufficient fees to attract a broad range of kinds of potential providers.
6. Explicit mandates
Trustees should communicate to members, for each fund offered by the scheme:
· the investment objective for the fund, its benchmark(s) and risk parameters; and
· the manager’s approach in attempting to achieve the objective.
These should also be discussed with the fund manager concerned, as should a clear timescale(s) of measurement and evaluation, with the understanding that the fund mandate will not be terminated before the expiry of the evaluation timescale for underperformance alone.
Trustees, or those to whom they have delegated the task, should have a full understanding of the transaction-related costs they incur, including commissions. They should understand all the options open to them in respect of these costs, and should have an active strategy - whether through direct financial incentives or otherwise - for ensuring that these costs are properly controlled without jeopardising the fund's other objectives.
Trustees should not without good reason permit soft commissions to be paid in respect of their fund’s transactions.
7. Activism
The mandate and trust deed should incorporate the principle of the US Department of
Labor Interpretative Bulletin on activism. Managers should have an explicit strategy, elucidating the circumstances in which they will intervene in a company; the approach they will use in doing so; and how they measure the effectiveness of this strategy.
8. Appropriate benchmarks
Trustees should:
· explicitly consider, in consultation with their investment manager(s), whether the index benchmarks they have selected are appropriate; in particular, whether the construction of the index creates incentives to follow sub-optimal investment strategies;
· if setting limits on divergence from an index; ensure that they reflect the approximations involved in index construction and selection;
· consider explicitly for each asset class invested, whether active or passive management would be more appropriate given the efficiency, liquidity and level of transaction costs in the market concerned; and
· where they believe active management has the potential to achieve higher returns, set both targets and risk controls that reflect this, giving managers the freedom to pursue genuinely active strategies.
9. Performance measurement
Trustees should arrange for measurement of the performance of the funds and make formal assessment of their own procedures and decisions as trustees. They should also arrange for a formal assessment of performance and decision-making delegated to advisers and managers.
10. Transparency
A strengthened Statement of Investment Principles should set out:
· who is taking which decisions and why this structure has been selected;
· each fund option’s investment characteristics;
· the default option’s investment characteristics, and why it has been selected;
· the agreements with all advisers and managers; and
· the nature of the fee structures in place for all advisers and managers, and why this set of structures has been selected.
11. Regular reporting
Trustees should publish their Statement of Investment Principles and the results of their monitoring of advisers and managers. They should send key information from these annually to members of these funds, including an explanation of why the fund has chosen to depart from any of these principles.
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