The inter-relationship between covenant, investment and funding has been the focus of the Pensions Regulator’s extensive guidance on developing an integrated risk management (IRM) framework. The point we want to make here is a practical one – IRM does not have to be complicated. The fact that it often seems to become so is not a weakness of IRM but of the way in which the framework has been developed.
bac’s role as governance adviser is to work with the trustees and their covenant, investment and actuarial advisers to design an IRM framework that is appropriate for the circumstances of the scheme in question. We do not seek to supplant any of the incumbent advisers but rather, using our broad experience of trustee governance, we act as honest broker in bringing the advisers together to develop a practical and cost-effective IRM framework.
We have market leading IRM technology that allows you to set up your existing IRM framework online (or you can use ours!) and to integrate this with your broader governance framework (for example your risk registers). The real power of our technology is the ability to set up bespoke “what if“ scenarios that allow trustees and sponsors to see how their IRM framework would respond and enable an in-depth discussion of the emerging issues.
Several of our trustee boards have run some highly effective “what if?” scenarios with the help of their IRM framework. Recent examples have included:
- a cyber attack on the sponsor’s IT infrastructure, resulting in the loss of large quantities of personal data with subsequent covenant implications
- a 2008-style credit crunch but with the liquidity crisis extending to personal debt, resulting in both macro-scale investment impacts and pressure on the cash flow of the sponsor
- a fraud perpetrated by an employee of the in-house investment team leading to large financial losses.
In all cases, the discussion of the scenario led the trustees to strengthen their risk mitigations. One example saw the introduction of independent trustees to reduce the trustee board’s dependence on senior company trustees, who may become conflicted or simply too busy to fulfil their trustee duties in a crisis. In another case there was a fundamental review of the balance between in-house and out-sourced resources.
In the news this week, the second Lloyds judgement says that historic transfer payments need to reflect GMP equalisation, the Pension Schemes Bill moves back to the Lords, TPR gets tough on AE compliance, the FCA surveys DB transfer advisers again and another buy-in is completed.
This quarter’s Arena has a summary of our recent Pensions Perspective, “Endgame planning comes of age”, which looked at how long-term funding and investment plans are evolving and why companies are increasingly taking the lead in designing an endgame strategy. It also shows all the usual financial and investment analysis for the quarter ending 30 September 2020.
Journey plans or glide paths may have been around for a long time but they’re at the heart of the Regulator’s proposed new funding code. In this Pensions Perspective, Leonard Bowman looks at how long-term funding and investment plans are evolving and explains why companies are increasingly taking the lead in designing an endgame strategy for their schemes.
This quarter’s Arena has a summary of our recent Pensions Perspective, “Emerging from lockdown”, which looked at how best to tackle the most common pension issues which companies are currently facing. It also shows all the usual financial and investment analysis for the quarter ending 30 June 2020.
As we keep hearing, we are living in unprecedented times. However, as we turn our attention to the future, what does the “new normal” mean for defined benefit pension schemes? In this Pensions Perspective, Leonard Bowman considers the most common pension issues that companies are facing and how best to ensure that the company approaches these on the front foot.