Trustees have 'false confidence' in their scheme strategies
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
While 92% of defined benefit (DB) scheme trustees said they were prepared for the next stage of their strategy, exactly half of them had considered alternative strategies due to increase maturity, while another 40% cited regulatory pressures and covenant changes apiece.
Another 81% believed the forthcoming change in DB scheme funding regulations would also lead to a change in the way they managed the scheme's strategy.
And 88% had considered a new strategy over the past year, with "such frequent change" suggesting that many existing strategies "are not, in fact, fit for purpose", Barnett Waddingham said.
The consultancy's Ready or Not - is your pension scheme up to the challenge? report found that more than a third of the schemes "had a sense of strategic direction but no formal or written plans in place". This was even true of 24% of the schemes with more than £1bn in assets.
And although the schemes were confident in the next stage of their strategy, they were less enthused by the expertise and skills of their advisers, as well as the strength of their employer covenant.
Just 48% said they were confident in the expertise of their current advisers and actuarial consultants ahead of the next phase of their scheme's development. Another 42% said they were confident in the skills of their investment advisers, and 40% showed confidence in employer covenant.
And a little over half were confident in the expertise and experience of their trustees, and 31% lacked confidence in the working relationship between the scheme and the sponsor.
Partner and head of actuarial consulting Paul Houghton said: "A DB scheme is very much like a piece of machinery with many moving parts; these moving parts need to be maintained by experts in order to keep moving and avoid the possibility of breaking down.
"There is a worrying amount of, what could be perceived as, false confidence from trustees administering their machine. Although confidence levels appear to be high in the overall strategy there are a number of anomalies when we begin to drill down into the minutiae of the findings."
Houghton said the survey results highlighted "the moving parts that need to be tightened".
He continued: "Schemes need a well-defined strategy, some already do, and some only think they do but in reality the majority need to be honest - they need help. As a scheme navigates its way through different elements, such as Covid-19 and the ever-changing pensions landscape, it is essential the right options are chosen, and a fit for purpose strategy is created. This does not need to be immutable, but those stakeholders involved need to understand the options chosen.
"All schemes face numerous challenges. However, we were surpassed by some of the issues causing trustees to change strategy, like scheme maturity, as they can easily be foreseen in advance using the correct technology and data. The weaknesses we have highlighted represent key components within every scheme, which are an integral part of running a well-oiled machine.
"These areas must be identified and fixed before trustees can be confident in the strategy they have created, as a whole not just some components. Reviewing these areas will allow strategies to measure up to expectations and remain fit for purpose so they can confidently navigate through their long-term journey."
The survey of 100 respondents, conducted in May and June, included employer- and member-nominated trustees, as well as board chairs and professional or independent trustees, representing schemes from £21m to more than £1bn in assets.
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