Caledonian NewsOpinion

Pension scheme deficits

I found an interesting, but concerning article on City AM entitled “Total deficit on pension schemes eligible to board the pensions lifeboat grew by more than £20bn in a month“.  The reporter (Hayley Kirton) refers to the latest PPF 7800 Index figures, which keep track of the funding position of the defined benefit (DB) pension schemes eligible for entry to the Pension Protection Fund (PPF), that revealed the total deficit was £294.6bn at the end of May (2016), up from £270.2bn at the end of April.

The state of pension finances is being discussed daily in the media, sometimes for political gain, sometimes to grab the headline and sometimes just to inform, to prove my point I did a google search based on “Pensions in the news” and three completely different links grabbed my attention

Daily Telegraph: Doubling in medics and managers retiring with £2m NHS pension pots

Reuters: Public pension funds seek infrastructure as market heats up

Department for work and pensions: Pensions and ageing society

I will leave it to you to decide which if any are political, headline grabbing and/or informative, but it does prove that the pressure on pension schemes, their trustees and managers is not going away.  This is where I trot out the hackneyed statement that “well-run pension schemes” will be aware of the issues and have put together a viable recovery and/or action plan.  But even though that statement or others very similar to it, appear time after time it doesn’t alter the fact that it is a legal (and moral) requirement that the trustee board does indeed ensure that their scheme is well-run.  To emphasise the importance in the Pension Regulator’s own short guide for new trustees the words “well run”, “run well” or “well governed and administered” appear 5 times over 6 pages.

What can or should pension trustees do?

Of course, utilising the services of an independent professional trustee, such as Caledonian Trustees can help you with the complexities of managing a pension scheme, but also following a risk management process should ensure that your scheme will be on-track to be considered well-run:

  • Adequate internal controls are a key characteristic of a well run scheme and a key component of the trustee’s role in securing member benefits. An adequate system of internal controls contributes significantly to the safe custody of scheme assets and protects the scheme from adverse risks.
  • Trustees should regularly (eg annually) undertake risk assessment exercises to identify whether their existing system of internal controls is still fit for purpose – do they prevent and detect errors in existing scheme operations, and will they help mitigate new risks?

internal-controls-1

  • It’s vital that members’ benefits and scheme assets are not put at risk as a result of poor controls. Trustees have a legal obligation to act in the best interests of the scheme’s beneficiaries. It’s essential that trustees understand their scheme rules and all relevant legal requirements to ensure that controls aim to secure that the scheme is administered and managed in accordance with these. If trustees are in any doubt about scheme rules or applicable law they should seek independent legal advice.
  • Trustees need to be familiar with the Pension Regulator’s code and guidance. Where the Regulator engages with trustees they may make enquiries about the scheme’s internal controls framework. Their starting point will be to expect trustees to be able to demonstrate application of the practices identified in this guidance and explain divergence if they have sought to comply with the law in an alternative way.
  • Trustees could consider their own responses to a series of appraisal-type questions and document any remedial action to be taken where appropriate. Questions could include (but are not restricted to):
    • Do we have access to up to date scheme documents?
    • Are we conversant with them?
    • Are we encouraged and able to obtain identified training needs?
    • Do we give ourselves sufficient time to prepare for meetings?
    • Do all trustees attend all meetings?
    • Is sufficient time given to important issues?
    • Does the chair act in an impartial manner, seeking consensus without compromising integrity of decision-making?
    • At the end of discussions do we sum up for the benefit of participants and the minutes what has been agreed, and what still needs to be done to carry an issue forward?
    • Do we review draft minutes and action points from meetings?
    • Is independent advice taken? Do trustees understand and debate advice received?
    • Is the composition of the trustee board satisfactory?
    • Does the chair assess the skills and capabilities of trustees prior to their appointment and thereafter?
    • Are conflicts actively identified, monitored and managed?

 

About us

Caledonian Trustees Limited is a privately-owned professional independent trustee company, based in Essex, UK. Our clients include household names and some that you may never have heard of but big or small we pride ourselves in offering a flexible, cost effective and relevant service each and every time . The Caledonians have many years of experience in pension, employee benefit consultancies and life companies which means we  understand the challenges that you face.

Click here to contact the Caledonians or call us on 01371 829054

Caledonian Trustees Limited. The Sheiling, Oak Hill, Wethersfield, Essex. CM7 4AJ

 

Sources:

The Pension Regulator: Internal Controls

The Pension Regulator: I am a new pension scheme trustee, what do I need to do?

City AM: Total deficit on pension schemes eligible to board the pensions lifeboat grew by more than £20bn in a month