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 Chancellor’s summer statement is pensions-lite, a call for input is launched on data standards for pensions dashboards, a company looks to bring its DB scheme closure forward by four years and another large longevity swap is completed.
Covid-19 has created many challenges for DB schemes but, for those ready to transact in 2020, it may have created even more favourable market conditions for a buyout. The problem is that most schemes are not there yet. In this Briefing we look at what being “deal ready” actually means and what work it will involve.
Given the very company/scheme-specific impact of the Covid-19 pandemic, in this quarter’s Arena we simply show all the usual financial and investment analysis for what was a very turbulent first three months of 2020, plus a summary of key pension developments and Company pensions news over the quarter.
Over the autumn of 2019, BAC conducted an extensive survey of the actions which companies are taking to manage their defined benefit (DB) and defined contribution (DC) pension arrangements.
2019 marked 50 years since Neil Armstrong walked on the moon and this was obviously on the Queen’s mind in her Christmas message as she talked about a bumpy year but one with small steps of progress as well. In terms of pensions, it also felt like a year of small steps and occasional bumps. In this quarter’s Arena, we take a positive look back at 2019, as well as looking forward to some expected pension developments over 2020.