Risk management
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.
Related insights
- New DB funding code – it’s all about the journeyThe key to all good sagas is a little longevity. A fast start, plenty of meandering and then a crescendo finish. Something like that, anyway…
- Surplus – can too much money be a bad thing?Like many pensions lawyers, I have spent much of my career talking about underfunded defined benefit schemes – section 75 debts, recovery…
- Is your Single Code strategy race-ready?At the time of writing, the updated version of TPR’s new single code of practice (the Code) is still awaited. Although we are not yet at the finish line…
- Hot Topic – TPR’s Single Code: What should trustees be doing nowTPR’s new single code of practice is expected to be published in autumn 2022. Although we are still waiting to see what the final…