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Lessons to learn from experience for pension schemes
6 January 2021

Lessons to learn from experience for pension schemes

Insight Partner

A recent survey carried out by Barnett Waddingham asked trustees to identify the risks they were most concerned about for their schemes. It also asked trustees to share their experience of the types of risk events that had crystallised for their schemes over the past three years.

A number of key themes emerged from recent experience.

The most common risk events cited were predictably related to economic conditions and, more recently, the impact of COVID-19 and lockdowns. A number of respondents had experienced weakening employer covenant, with some employers becoming insolvent.

The next most common risk events experienced were actual asset returns being materially lower than assumed in funding plans, and market volatility. A number of trustees had changed administrator, discovered errors in their data, or experienced a cyber-attack. Trustees had also experienced difficulties over agreeing valuations and delays in receiving contributions.

What lessons can we learn from these experiences?

Financial risks

Trustees are unable to change factors such as the financial position of their sponsoring employer or macro-economic conditions. For these types of risks, trustees can only aim for better understanding and mitigation. Other risks, however, are more directly under trustee control and can be directly or indirectly managed to some degree.

Although trustees should already have a framework for monitoring their employer covenant, they may wish to consider strengthening this. Could more regular covenant reporting be appropriate, including reporting on agreed key metrics to provide an early warning system? Other actions could include agreeing a data sharing protocol to ensure the trustees and their advisers have access to the most recent management accounts and information given to other key creditors, agreeing negative pledges and exploring the possibility of contingent assets.

Where trustees are concerned about potential insolvency, the appointment of a specialist insolvency practitioner may help, particularly where there may be re-financing or re-structuring. The appointment of an independent trustee experienced in dealing with distressed companies and their creditors could also assist. Trustees should familiarise themselves with the Pension Protection Fund’s guidance on contingency planning for employer insolvency at

Trustees need to establish what to monitor, who is carrying out the monitoring and how this should be reported. This will very much depend on the support resources available. The scheme administrators and secretary to the trustees should, for example, monitor compliance with the schedule of contributions and ensure that advance reminders are issued to the employer when any payments are due to change or any one-off contributions fall due.

Funding arrangements and any contingent assets such as guarantees and renewal dates should be recorded within the scheme’s business plan, and the controls in place set out in the trustees’ risk management processes.

Although funding and investment risks are heavily influenced by macro-economic factors, trustees should, with their advisers, review whether they are on track to meet their long-term targets. They should adjust their path if they are not, and carry out scenario analysis to identify the key risks under their scheme’s lifetime. Trustees can look at removing unrewarded risks through hedging, and identifying and managing any concentration of risk under their portfolios. Taking into account Environmental Social and Governance (ESG) factors, including climate change, in their investment strategy could also help improve the security of members’ benefits in the long-term.


Operational risks

Particularly in light of COVID-19, trustees should review their adviser and administrator’s business continuity plans, data protection polices and cyber security policies. Reviewing data for presence and quality will also help with planning and possibly the pricing of the endgame. Good data will reduce benefit errors and member complaints as well as facilitate the completion of bulk member exercises like Guaranteed Minimum Pension (GMP) equalisation.

Trustees should consider whether some sort of independent data audit is required, especially if they have any confidence issues with the existing administrator. The data required for running the scheme on an ongoing basis may not necessarily be enough to deal with the sort of bulk member processing that a GMP equalisation project will bring.

Where administration performance is a recurring issue, trustees could consider carrying out a structured review to really understand the problems. They could then work with their administrator on an improvement plan or take the nuclear option of going to tender. Where trustees themselves don’t have the experience or resource to do this, they could consider a secondment or appointment of an external secretary with the required skill set.

Governance risks

Trustees should periodically consider whether they are managing their scheme effectively. Sample questions for reflection include:

  • Do they get the right information on time to make informed decisions?
  • Are agendas focused on the things that will help them reach their strategic goals?
  • Do they understand how they manage risk? Are the tools they use dynamic and easy to use?
  • Do they have the right set of skills on the Trustee Board? Is the make-up of the Board diverse enough to bring fresh ideas and avoid group think?
  • Are virtual meetings working well for the trustee and their advisers?
  • Do they have an effective trustee training policy and programme?
  • To what extent do they use external or internal audit? How do they know their processes are working or their data quality is good?
  • Do they have an overall business continuity plan? What would they do, for example, if the Trustee Chair became ill for an extended period?

The trustee secretary can arrange for a trustee effectiveness or governance review to be conducted to assess how the group works together as a management body with their advisers. Following that there should be a clear action plan put in place and monitored.

If the trustees are struggling to find sufficient time to cover the key risks and priorities for their scheme, they could delegate day-to-day activities to the secretary or to the equivalent of an outsourced Chief Operating Officer or “COO”. This still requires the trustees to have oversight, which can be achieved by effective reporting. The trustees should focus on the strategic issues that will ultimately determine whether the scheme meets its long-term objectives, even during COVID-19 and lockdown - and whatever follows next.


This article was featured in Pensions Aspects magazine January edition.

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Last update: 23 April 2021

Peter Clarke
Peter Clarke
Barnett Waddingham
Senior Pension Management Consultant

Client Director, Trustee Executive

Salary: £80000 - £130000 pa

Location: Work from home, with travel to client meetings/office as required

Senior DB Pensions Technical Admin., 2-3 days from home

Salary: £25000 - £38000 pa

Location: East Sussex, 2-3 days work from home

Pension Administrator (Hybrid Flexible Working Option)

Salary: £27000 pa

Location: South Yorkshire (with Hybrid Flexible Working Option)

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