- The wide range of techniques and solutions to de-risk
- The maturity of scheme including cash-flow requirements
- Size of scheme and access to investment options
- Quality of the membership data
- Current funding position
- Level of deficit reduction contributions
- Level of engagement from the sponsor
- The knowledge and understanding of the trustees.
In particular, the techniques and solutions include buy-ins, partial buy-ins, top-slicing, medical underwritten solutions, longevity hedging, liability management exercises and pension consolidators, to name a few.
How can trustees make informed decisions when de-risking their pension scheme?
- Work in collaboration with your advisers to develop a journey plan – it is often worth considering getting specialist help from those who are adept in this area and they can often work alongside your current advisers.
- Alongside the journey plan it is just as important to develop a training plan for the trustees which encompasses the key elements of a de-risking journey plan. Before embarking on such an important exercise it is critical that the trustees have a good knowledge and understanding of the consequences of their decisions for the members and the sponsor.
- Consider working with the sponsor to appoint an accredited professional trustee. In particular look to appoint someone who not only understands the issues but is able to explain them to the other trustees (as and when needed), and to the sponsor.
- Seek engagement with all key stakeholders, not only with the sponsor but also with the insurers, asset managers and consolidators (to the extent that they play a role in your plan) . There are often competing demands on their time and if you are able to share a well thought out plan you will maximise engagement and be more likely to achieve your objectives.
- Ensure the journey plan for de-risking is flexible to cope with unexpected shocks to the plan. As we have seen with Covid-19 many things are unpredictable so do not be afraid to revisit the plan as things change.
- Do not focus just on investment risk but keep in mind the bigger picture where, for many schemes, the biggest risk is employer covenant deteriorating. It is important to understand the employer’s business risks and what correlations there might be between these and the scheme’s own risks.
- Finally, the need to move quickly at times means that you should not be constrained by a quarterly meeting schedule. Be prepared to convene meetings as and when necessary but ensure that the governance around these meetings is rigorous.
What does it mean to be an accredited professional trustee?
For me the key attributes that a professional trustee can bring to a trustee board are two-fold:
Firstly, they should seek to improve the overall quality of decision making by helping the trustee board, as a whole, understand the issues they are facing and the consequences of their decisions, and Secondly, they can maximise the engagement with the sponsor in order to help them understand why the trustees are taking certain actions.
This article was featured in Pensions Aspects magazine November/December edition.
Last update: 20 November 2020