Pension trustees face a unique mix of challenges. Barnett Waddingham’s new report, Ready or Not, explores how effective trustees are on a strategic level.
Running a defined benefit (DB) pension scheme is hard work. Trustees are charged with making the right decisions at the right time, balancing performance with protecting members' interests.
That's easier said than done when the burden of governance is forever increasing, and the ‘lower for longer' investment environment seems to have become the new normal.
The state of play
Even before Covid-19 hit in early 2020, trustees were dealing with fast-maturing schemes, and many will have altered strategies in order to meet pension promises.
We wanted a better understanding of how trustees were coping with the changing needs of their schemes, leading to the survey underscoring our new report, Ready or Not. The findings were fascinating but confirmed some of the concerns we had about how prepared many schemes are for the overall journey let alone their next steps.
Almost all schemes (92%) claimed to be confident about the next stage of their strategy. But as we dug a little deeper, worrying trends were identified across all sizes of pension scheme.
Many lacked confidence in some areas that we consider to be the building blocks of good governance. If a trustee lacks confidence in any one of these areas, it raises questions about how they can be confident about the strategy as a whole.
In addition, almost nine in 10 had considered making changes to their existing strategy. The biggest triggers leading to this were maturity (50%), regulation (40%) and sponsor covenant (40%).
Things happen - often very quickly - to affect the security of a sponsor covenant. But maturity doesn't change overnight, and we would expect schemes to have a strong grasp of their maturity profile, and how it will evolve, well before long-term plans are put in place.
This confirmed our fears that some of the strategies at UK DB pension schemes may not be as robust as claimed. In such circumstances, some trustees will have a false sense of security about their overall approach.
Low trust in advisers
As independent advisors, we are often made aware of the concerns about apparent conflicts of interest that scheme advisers must manage. However, we were surprised at how low the levels of confidence were in professional advisers - even among the best-prepared schemes.
Too many schemes are concerned about certain aspects of the future direction of their scheme. The time to address them is now - not when cracks start to appear.
How do you measure up?
These topics and more are explored in more detail in our full report, Ready or Not.
In addition, we have developed an online benchmarking tool using a small subset of the survey questions to identify four types of scheme: the confident prepper, not fully confident, room for improvement and blissfully ignorant.
The index will place you in one of those groups and offer insights into the schemes that share your views. It is free and your scheme name(s) is not required, the results aim to help challenge thinking, as well as highlight potential areas for improvement.