why do pension schemes invest?

In April 1984, a significant High Court judgement was handed down. Cowan v Scargill concerned the NUM Pension Scheme. Union-nominated trustees wanted the Scheme to invest only in the UK, and to avoid investment in industries directly competing with coal. With the trustee board deadlocked, the Court was asked to consider the appropriate exercise of Scheme investment powers. It concluded that where the purpose of the trust was to provide financial benefits for the beneficiaries, the best interests of those beneficiaries were ‘normally their financial interests.’

As other cases have reached the courts and the push for the consideration of social, ethical and environmental issues has grown, doubt has been cast on the decision, even though such issues may properly be considered where there is no significant detriment, or if they adversely impact investment returns.

The legal position is once again under discussion in response to calls for greater pension investment in the wider UK economy. The hope of long term general economic benefit is unlikely on its own to justify investment and, as with any other investment, trustees will consider the attractiveness of opportunities offered compared with others available, the degree of risk presented and their Scheme profile and strategy.

It may be that the law on investors’ fiduciary duties needs yet another review. But the purpose of pension investment is and should be two-fold – to provide security for the pension promise and to ensure that the cost of that promise is sustainable.

Pensions Archive Trust Director, Jane Marshall

https://pensionsarchive.org.uk/our-collections/

This article was first published in the April 2025 edition of Pensions Age magazine.