As a pension trustee, the greatest responsibility – which overrides all others – is to ensure funds exist to meet liabilities when due
The Pensions Regulator states: “To be able to meet those liabilities when they fall due, trustees need to monitor the funding level of the scheme, manage the scheme’s existing investments, and invest any new contributions they receive.”
Most schemes are reliant on investment returns to grow the contributions to meet this requirement and there is no transparent, credible or reliable investment service for trustees to use. The investment industry seems to say: “We propose to deliver index+n per cent returns over many years but you will pay even if we fail to deliver these returns.”
In our own lives we expect service providers to offer some form of contractual compensation. One commonly used consumer device is a guarantee to provide a formal assurance that certain conditions will be fulfilled.
Sponsors struggle to meet the increasing contribution demands to adequately fund their schemes, but the financial services sector appears not to be prepared to share this responsibility in volatile investment climates, leaving all the burden of risk with the trustees.
Until trustees can rely on investment service providers, they will be unable to satisfy their primary obligation to scheme members that the funds exist, and will continue to exist, to meet their liabilities when they are due.
Written by Peter Lewis and Steve Seymour, former member-nominated trustees of the Oracle UK Pension Plan, writing in a personal capacity.