ABSTRACT
This chapter outlines the legal and regulatory framework within which pension schemes operate. The role and responsibilities of pension scheme trustees with regard to the fund’s investments are outlined. The particular risks attaching to pension fund investment are described and investment objectives outlined. The central role of the trustees in determining investment strategy is discussed. Occupational pension schemes are normally organised as trusts. The trust is a legal entity in its own right and it is separate and distinct from the sponsoring employer. Occupational schemes differ depending upon how the retirement benefits are determined and how the scheme’s assets are invested and administered. They may be defined benefit schemes, defined contribution schemes or, occasionally, a combination of these, known as hybrid schemes. Global retirement income schemes are diverse and involve a range of different programmes. The OECD classifies retirement income provision into three tiers. It defines two mandatory tiers, an adequacy segment and an earnings-related segment, and a third tier, voluntary provision. The background for pension schemes has been difficult. The asset side of the balance sheet has suffered from two major equity bear markets in 2000–02 and 2008–09. Ultra-low bond yields and rising longevity have increased the present value of liabilities. New standards in financial reporting have created further challenges for the sponsors (employers) of defined benefit pension schemes, particularly in the context of rising scheme deficits.
