Six areas for a Trustee’s business plan review

Image        Recognising that some trustees may have already started their business plan review what are some of the issues that should be included in the list of actions for 2014?

 

Employers covenant  

As the economy starts to gingerly come out of the worst recession in living memory, trustees will need to keep a close eye on the strength of the employer covenant. Returning to growth is a critical time for many businesses; as the economy begins to pick up and the orders grow they may not have the capacity to meet the demand or quickly be able to increase that capacity. This may mean a loss of market share to the more flexible and agile companies that can meet the demand. Whilst some companies will have invested, and continue to invest in additional capacity and products, this requires confidence in the market and as well as the ability to deliver. Not all companies will survive the upturn.

Investment strategy

Much as though the phrase ‘take risk off the table’ has become a cliché of the investment consulting community Trustees in conjunction with their Principal Employer need to consider whether the current investment strategy is actually going to get them to their destination, be it self-sufficiency or buy–out.

This means, among other things, reviewing the Trustees own investment beliefs. This is a critical discussion which allows the investment strategy to be developed, for example:

  • Do they believe that growth assets such as listed equities are likely to deliver a higher return, over the long term, than government bonds or cash but with a higher level of risk, especially in the short term and when compared to the Scheme’s liabilities
  • Do they believe that active investment managers can add value when financial markets are inefficient? If so do the Trustees also believe that active managers will, on average, underperform their representative benchmarks net of fees? From this are the Trustees are only willing to pay high fees if they have strong grounds to trust a manager’s ability to achieve a higher net return than a lower cost solution, such an index tracker?

 

Member data

The decisions which trustees reach are based in a large part on the member data held by the administrators.  Improving the quality of pension schemes’ record-keeping is a key priority of the Pensions Regulator, which earlier in January 2014 urged schemes to continue the drive to make improvements following the launch of its consultation on DB regulation. This is despite the Pensions Regulator shelving plans to set targets for scheme conditional data as it did for common data. The point is that scheme member data is important (see the CBC blog http://blog.clarkbenefitconsulting.co.uk/pensions-schemes-and-poor-data-why-is-it-and-how-to-sort-it/ for more information).

 

Scheme governance

The Trustees should review the governance of the Scheme to ensure that they have the policies and procedures in place to monitor and check that the Scheme is being managed effectively and efficiently. Good practice is by definition always developing. The Trustees should consider how they can ensure that they have high quality governance systems, how this is applied when working with their advisers and how the scheme governance transmits confidence to scheme members that they will be paid their correct benefits at the correct time.

 

The impact of more legislation

From 2016, the single tier State Pension is introduced. For the Schemes who provide bridging pensions the trustees need to consider how the rules need to review the Scheme policy and possibly the rules. The potential of equalisation of Guaranteed Minimum Pensions remains a work in progress for the Department Work and Pensions. The draft methodology produced in 2012 was kicked into the long grass and we await another attempt. In our view unwelcome though this is, trustees need to keep the matter on their radar. The Disclosure Regulations are also due to be updated from April 2014. Whilst most of the changes are optional, time needs to be set aside to review what actions, if any the trustees wish to take.

 

Trustee training

Whilst the Pensions Regulator’s Trustee Toolkit is a useful (and free) trustee education tool, the benefits of a full Got, Gap, Get analysis of Trustee knowledge and understanding should be on most Boards business plans. This is a valuable tool to measure and identify not only at an individual but at a full board level areas which the training budget needs to address. The importance of Just in Time training at trustee/committee meetings, for example just before a scheme valuation, should also not be missed.

 

Time spent on planning is seldom wasted. Trustees should be encouraged to make the necessary time investment to think strategically. Let’s go to it!

 

February 2014

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