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, worrying results from pension scam research, a longevity swap conversion and CPI at its lowest level for nearly three years.
Despite the very different circumstances facing individual companies, bac‘s autumn 2019 survey reveals a surprisingly consistent picture of the actions which companies are finding most attractive to manage their DB and DC pension arrangements.
As DB liabilities have become legacy issues to be managed, governance has become the umbrella term for a broad range of risk management tools. In this publication, we look at the DB governance solutions we have helped our clients to implement.
As pension trustees and sponsors get serious about good governance, a key question is whether technology can play a meaningful role or is simply an expensive addition that looks good but adds little value?
In this Pensions Perspective, Andrew Udale-Smith looks first at the different types of adviser review and when and how they might best be used. Then he focuses on how to design a smooth and efficient process for a full market tender.