Opinion: Getting back on track
Despite the uncertainty, there is plenty within the control of Trustees and sponsors that they should be getting on with to improve outcomes for members.
Most schemes adapted rapidly as the crisis hit, coping well with the overnight shock. Many paused activities to ensure they were not overwhelmed and have reached a new state of business as usual.
Trustees and sponsors must now challenge themselves to refocus on strategic priorities. Schemes have passed the first test and proved that they can operate successfully in lockdown. Now, they must apply the same energy to improving outcomes for the millions that rely on pension income.
Five things that should be top of your agenda
- Take control of your long-term funding plan
For most DB schemes, the biggest change will be the sponsor covenant. We will not know the impact on the UK economy for some time. But clearly some sectors have suffered badly. Short term easements such as reducing deficit contributions have been implemented in at least 10% of cases. This is a blunt response and a smarter, more sustainable approach will be needed that protects members but supports businesses as the economy rebuilds.
- Update journey plan using sensitivities for returns and contributions. Decide whether to maintain current risk exposure and/or extend timescales
- Temporary funding arrangements may be necessary. Alternative security or asset-backed structures may give much-needed flexibility
- Resume any operational activity that was paused
We do not know when and how we will return to offices. Short term measures such as suspending transfer values should be reviewed, and restarted as soon as feasible. Further changes to processes will inevitably be necessary, such as the TPR requirements on scams.
- Review your business plan and challenge yourself – much of it may be achievable despite delays.
- Adapt your meeting cadence to remote working. Agendas should focus on strategic priorities as well as urgent decisions.
- Keep communicating with members.
These are still very worrying times for your members. You may need to provide further reassurance, or update members on changes to procedures as these become less temporary and more a feature of a new way of operating.
TPR has highlighted the need to alert members to the risks of scams. For active members furlough arrangements will be phased out. And for DC schemes, the risk of further market volatility will be a concern.
- Review planned communications, both for timing and content. Can benefit statements be amended to reflect recent events?
- Look ahead to likely events, such as changes to furlough arrangements, and plan the appropriate communications.
- Continue longer term important projects
Most schemes have now reached a steady state and are ready to resume important projects. This may include GMP equalisation and improving data quality. Any work will not be wasted and will help schemes achieve their long-term objectives.
- Challenge your advisers and providers – what projects can be restarted now?
- If certain projects need to be suspended due to external factors, can other projects on your business plan can be brought forward?
- Be alert to opportunities
Market conditions have created challenges for many schemes, but also create opportunities. There are tactical investment opportunities that might improve outcomes for members if they can be realised quickly. Changes to sponsor structures and financing might enable the scheme to negotiate an improvement as creditor.
Insurers are very much open for business and pricing is more attractive than before. Guidance from TPR on regulating consolidators is imminent, and we expect the first transactions to take place quickly thereafter.
- Investment governance should be agile enough to monitor and take advantage of emerging opportunities
- Monitor closely and be ready to take advantage of changes in the market or sponsor to improve member security