The UK’s Pensions Regulator (TPR) has urged DB pension fund trustees to take a long-term view of investment risks, governance, and strategy in fresh guidance published this week.

The lengthy online document detailed the regulator’s expectations of trustees in charge of defined benefit (DB) pensions, and came as part of a wider push to improve scheme governance.

Fred Berry, TPR’s head of investment consultancy, said: “The investment strategy is one of the most important drivers of a scheme’s ability to meet the objective of paying the promised benefits as they fall due, and we expect trustees to set this in the context of their integrated risk management approach.

“It’s important to set clear investment objectives for your scheme and to identify how and when they should be achieved. Our guidance states that trustees should focus on areas that have the most impact for meeting their scheme’s objectives, and identify the necessary skills for the board of trustees of their scheme. It also provides some practical guidance on how to get the best from their advisers.”

The guidance encouraged trustees to focus on “highest level strategic decisions” and delegating other tasks to third parties, including consultants and fiduciary managers.

It also emphasised the importance of establishing policies for stewardship of assets – particularly when this responsibility is delegated to a third-party asset manager – and for long-term risks such as climate change.

“Most investments in pension schemes are exposed to long-term financial risks, which may include risks around long-term sustainability,” the regulator stated. “These can relate to factors such as climate change, responsible business practices and corporate governance. We expect you to assess the financial materiality of these factors and to allow for them accordingly in the development and implementation of your investment strategy.”

Stuart O’Brien, partner at Sackers, said: “TPR is right to draw out specific elements such as ESG, as trustees need to take an active decision as to whether these factors are financially material for their scheme – something which is not always straightforward in practice.”

The regulator also emphasised the importance of cash flow matching and modelling.

Calum Cooper, head of trustee consulting at Hymans Robertson, welcomed this, but warned that most cash flow modelling systems “typically don’t allow for the primary reason schemes hold assets: i.e. for income to pay the pensions promised”.

He claimed this could put members’ benefits in danger, as trustees would not have a full grasp of the risks of not meeting obligations.

Cooper added: “Model misbehaviour matters. Cash flows matter. The models used by schemes should reflect both asset and liability cash flows to improve the chances of paying members’ pensions in full.”

TPR’s guidance is available here.

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