DB schemes urged to review governance structures to prepare for endgame

Many companies with defined benefit (DB) pensions schemes are not giving enough focus to having the right governance structure in place for their endgame journey, Hymans Robertson has warned.

The consultancy noted that for a scheme’s endgame strategy to be a success its governance structure must allow it to make many timely decisions and to respond to changing circumstances, but many schemes are not set up for this.

Hymans Robertson pointed to joint company/trustee working parties, supplemented with joint scheme monitoring frameworks, as a highly effective way to improve a DB scheme’s day-to-day channels of communication.

It stated that many companies and their scheme trustees “need to implement these” so that the vast array of tactical decisions required to keep a scheme’s endgame strategy on track can be made quickly and with a clear focus on the endgame objectives.

Hymans Robertson head of corporate DB endgame strategy, Leonard Bowman, commented: “While we were aware that many schemes aren’t giving enough priority to governance structures as part of their corporate DB endgame planning, our views were backed up by a poll at one of our recent webinars.

“Less than a third of respondents (29.6 per cent) of company respondents agreed that their governance structure would allow for rapid investment decisions to respond to changing circumstances. Over half (55.6 per cent) said that there was room for improvement, while 14.8 per cent said that their governance structure did not enable this.”

Bowman also encouraged improved communication and collaboration between sponsors and trustees on endgame strategy, calling the indications of schemes working collaboratively on decision-making around their endgame strategies “good news”.

He added that 85 per cent of schemes said that they expected decision making around risk transfer to result from joint company and trustee discussions, but that timely risk transfer activity takes “careful planning, monitoring and the ability to move quickly when opportunities in the market present themselves".

Bowman was encouraged by the increasing number of schemes opening lines of communication between the corporate and the trustee on endgame strategy, noting that “90 per cent see member options as playing a part in the endgame strategy, which can only happen effectively if the company and the trustee work closely together”.

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