What are the top 5 issues that trustees and employers with DB pension schemes will have to deal with in 2017?
At the TDC Pensions Conference in November 2016 we asked the audience this question. Our audience was made up of employers and trustees who manage DB pension schemes and also a variety of professional advisers, such as lawyers, actuaries and auditors. In no particular order, the answers they gave us were:
- DB transfers
- Governance by 21st century trustees
- Investment strategy
- Scheme funding
- Assessment of employer covenant
The last three subjects in the list come together under the heading Integrated Risk Management, or IRM. This will be a key issue for trustees in 2017 as the Pensions Regulator is expecting all schemes to establish and maintain an IRM framework that is proportionate to the circumstances of each scheme. We are currently helping our clients to decide what a proportionate IRM framework is and set up the analysis and reporting of the investment strategy, scheme funding and cashflows, all supported by an understanding of employer covenant factors.
Since April 2015, there has been a growing interest from members to consider a transfer from a DB pension scheme to a DC pension plan. With low yields producing high transfer values, this interest is likely to continue throughout 2017. However, I still believe that the “win, win, win” for the member, trustees and sponsoring employer from a DB transfer will only occur on a few occasions for members with high value benefits.
The Pensions Regulator is expected to publish more guidance this year on 21st century governance by trustees of DB pension schemes, focusing on governance of small schemes in particular. It will be interesting to see if the Regulator is promoting the concept of consolidation of small DB schemes to improve governance standards. A concept that I do not agree with. But more of that in a future blog.
This is the third year we have published our Top 5 list. And three of the subjects on the above list have appeared in the lists for 2015, 2016 and 2017. They are DB transfers, investment strategy and scheme funding. I am sure you will have a clear view of the most important issues to be dealt with for your particular DB scheme. I would be delighted to hear from you on what they are.