What do trustees need to think about?
Even TPR acknowledges that it is not possible, or necessary, to eliminate all risks from a pension scheme. However, trustees should assess and understand the potential risks faced by their scheme. They can then work out what they should be doing in respect of each one.
Potential risks will vary from scheme to scheme, but a couple of key examples are:
- for DB schemes – the interconnected investment, covenant and funding risks
- for DC schemes – communication, given the dizzying array of possible retirement options available to their members.
How does the employer fit in?
Although trustees are responsible for running the scheme, there are knock-on effects for employers if risks aren’t properly addressed. As well as reputational risk, there may be financial implications too. For example, the employer may have to cover costs associated with improving administration, or to pay potential fines. So the employer will want to ensure that the scheme is being well managed.
Financial risks will be of particular interest to DB employers, as they are responsible for funding the gap between promised benefits and available scheme assets. See our blog on the new DB funding code below for detail on the new funding regime for DB schemes, which is currently expected to come into force in spring 2024, and which will impact how future funding risks are managed.
Some DB employers may even be facing a risk not commonly seen in decades – a potential surplus in their scheme. See our blog on surplus below for more about this risk and how to manage it.
What’s next for risk management?
TPR’s new General Code of Practice is expected to be published in spring 2023. See our Hot Topic below for tips on how to prepare. This is set to move the goal posts further for trustees when establishing and operating “internal controls”, which include risk management.
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