15.Sections 3 to 7 form Part II of the Act. This Part creates and defines a new default power of investment for trustees who do not have specific powers of investment under the trust instrument or legislation or whose trust instruments do not make provision which would be contrary to the new powers.  Section 3 creates the general power of investment.  Sections 4 and 5 create additional duties on the trustees to consider standard investment criteria and to take proper advice in exercising any power of investment.  Section 6 provides that the general power of investment is a default power.  Section 7 defines the trusts to which the new power and duties will apply.
16.Under the present law the powers of a trustee are defined by the trust instrument or by legislation.  Most modern trust instruments expressly confer wide investment powers.  Older trust instruments frequently do not. In the absence of express powers under the trust instrument the trustees must look to legislation to define their powers.  Some trustees, such as occupational pension trustees, have wide statutory powers of investment (Pensions Act 1995 section 34(1)) but most do not.  These trustees are restricted to the powers contained in the Trustee Investments Act 1961. These powers, although a generous provision when enacted, are now generally considered too narrow.  The 1961 Act divides the investments which trustees may make into narrower and wider range investments.  Typically, narrower range investments are fixed-interest securities and wider range investments are shares.
17.Under the new provisions trustees able to take advantage of the new default powers will no longer be restricted to specified “authorised investments” and will be able to invest in the same range of investments as an absolute owner.  Coupled with the new duty of care (section 1) the new power is intended to confer the widest possible investment powers whilst ensuring that trustees act prudently in safeguarding the capital of the trust.
18.The new power will be a default power.  That is, it will apply to the extent that the investment powers of the trustees are not expressed in the instrument creating the trust or any relevant legislation.  The new power is expected to be most beneficial in relation to older trusts (including many charities), trusts arising under “home made” wills and on intestacy.
19.The provisions of Part II do not apply to occupational pension schemes, authorised unit trusts or certain schemes under the Charities Act 1993 (see sections 36-38) which are governed by their own statutory rules.
Commentary on Sections Part II: Investment