Pension schemes – getting things done in times of uncertainty
Pension trustees are faced with an increasing array of obligations and decisions to make. How do you do that when there’s so much uncertainty, ranging from the big bad Brexit wolf, to ESG investing, to the more granular waiting for a regulator DB funding statement?
Aon carried out a survey of their conference participants back in 2015 and found that the biggest challenge facing Pension Scheme representatives is the time it takes to make a decision. 70% of respondents agreed that decisions sometimes take months from being raised to being implemented. (Source: Aon: Time to Focus on Getting Things Done: Delivering Pensions Stability faster.) Four years later and we suspect not much has changed.
This delayed decision making can result in missed opportunities which can be expensive, such as missing out on attractive short-term buyout prices.
Whether you are a trustee or in any other decision making role, good decision making relies on you having:
– access to the right information and advice
– the right people to make the decisions
– the right people to take the actions (with the right skills)
– the ability to make the right decisions and take the right actions at the right time.
It all starts with making sure you understand the long term objectives of your scheme (and those of your sponsor).
Yes, we do keep going on about having a business plan, but without it you have no framework for decision making.
We have seen examples of trustees concentrating their time on tasks such as reviewing individual investment managers rather than ensuring that the asset allocation strategy is appropriate for the scheme.
But where do you start when faced with the range of things you need to look at such as:
– Operational issues – budgets, risk registers, audits
– Employer covenant reporting
– Member communications
– Funding levels/fund performance reviews
One way to look at things is to break down the longer term goal into shorter time frames and concentrate on them.
Break your five year goal into what needs to happen over the next 12 months, and then break that down into what needs to be done in the next quarter (on the assumption you meet quarterly). Once you’ve done that, you can concentrate on just those activities and then review what needs to be changed at the next meeting and work out the actions for the next quarter (keeping in mind that they should be focussed on achieving the longer term goals). A proactive Scheme secretary can be a real boon to support this to make sure that issues don’t get overlooked.
You can use the important/urgent quadrant as a way of helping you prioritise your actions for the next quarter. By classifying the actions and decisions and when they need to be made by is one way of helping you prioritise e.g. See the below table:
|Important and urgent
Has to be done
|Not important but urgent|
|e.g. A deadline is looming for a scheme return to the TPR, or
reporting material payment failures, paying levies or reporting a breach of law, a funding opportunity decision that has a short shelf life.
|e.g. Business plan review or
training, investment review, board diversity review, employee covenant review, actuarial factor review
Not important and not urgent
|Not important but urgent|
|Due later and doesn’t move you towards your long term goals||Due soon, but doesn’t move you towards your long term goals|
We have wracked our brains to think of a pension trustee issue that fits in here and can’t!
|Look at what you could be outsourcing or giving to other people to do so you can concentrate on the above two quadrantse.g.
– Organising the trustee board meetings
– outsourcing roles carried out in house
– chasing outstanding actions
– reviewing trustee policies
– reviewing current advisers
Bear in mind that items might need to be moved around depending on when the actions need to be taken, so an item in the Important and not urgent, may need to be moved into the Important and urgent category in the next quarter.
The Important but not urgent tasks can be made the responsibility of the professional trustee, such as CBC, or of a sub-committee. The trick is to ensure that whoever is responsible has the expertise and time to carry them out.
Decision making processes
Do you have decision making processes in place to clarify:
– What the decision is
– Who needs to make the decision – can this be handled by a sub-committee with appropriate powers to make the decision or recommendation to the Trustee Board for example?
– Criteria for making the decision (which will be largely led by the business plan)?
You can get bogged down in worrying about making the best decisions. A review cycle is an essential element of decision making to ensure that decisions made in the past remain appropriate today.
Sometimes just making a decision will help you to move onto the next issue. Agonising over whether the solution is 100% perfect can easily cause the situation to remain unresolved and then everything piles up in the ‘to do’ box.
Having the experience of a professional trustee on board will help in making appropriate, well informed decisions, made at the right time.
Confucius said, “Better a diamond with a flaw than a pebble without.”
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