One of the key benefits of fiduciary management is that it gives trustees the time and resources to focus on high-level issues, which should mean they can make more informed decisions about strategy.
Clear and transparent reporting is essential to support trustees in this process. Moreover, good reporting is also crucial in monitoring the progress of the fiduciary manager against their prescribed objectives.
For all UK DB pension schemes, the fundamental long-term goal is to be able to meet future pension payments. This means that the pension scheme's assets should at least match the liabilities at the point they are to be paid. So two key questions for the fiduciary manager are:
- How will they design a strategy to meet this long-term funding goal?
- How will they put it into effect?
Regular reporting should then signal their progress in maintaining or improving the funding level and whether the pension scheme is on track to achieve its goals.
Although the overall objective is clear, measuring the performance of a fiduciary manager is more difficult than, say, that of an active UK equity fund manager. The success of the latter can usually be assessed quite clearly by looking at their performance in relation to a benchmark, such as the FTSE All Share Index. The reasons for this performance might then be explained in terms of their ability (or otherwise) to pick stocks which performed better than the benchmark. In contrast, the reasons for a change in funding level might be more complicated to determine. The following checklist sets out the key questions trustees should ask of their fiduciary manager to assess their performance:
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