Employer covenant risk remains trustees’ greatest DB concern

Trustees have again named employer covenant risk as the greatest risk facing DB pension schemes, according to PTL’s latest DB Risk Survey.

According to the study, 26.1 per cent of trustees named it as the top risk in January 2019, an increase of 1.8 per cent from October 2018.

Commenting on the findings, PTL managing director, Richard Butcher said: “In June 2017, one year after the European referendum, concerns about employer covenant risk were at around 14 per cent, but fast forward to the start of this year with an exit from the EU on the horizon but no deal agreed, and that figure has risen to 26 per cent.

“While direct concerns about Brexit and government are not rising significantly, the things that they impact are. It’s clear that the unclarified terms of Brexit are causing an ever-increasing circle of uncertainty over everything in its path.”

Despite the concerns surrounding Brexit, the number of trustees naming it as the greatest risk to DB schemes fell by 0.3 per cent to 16.7 per cent, although it was still named as the second highest risk.

Trustee concern over cyber security fell significantly, from 11.3 per cent to 8.7 per cent, while those naming inflation as the top risk fell from 6.78 per cent to 5.07 per cent and those primarily worried about GDPR compliance fell from 1.13 per cent to 0.72 per cent.

Butcher continued: "Inflation concerns are down massively versus 18 months ago when we were still in the midst of so called ‘project fear’ post the referendum, perhaps as the Brexit train continues to trundle along and nothing much really changes.

“Thankfully GDPR and cyber security concerns are down – GDPR is now behind us in terms of stepping up to the plate to meet the standards laid out, while a bold response from the media and industry on cyber security ensured the threats were laid bare.

“Pension savers, members, trustees, employers and schemes were able to educate and be educated, and take action as a result.”

PTL’s survey found that trustees concerned by new deficit funding rules and by a change of government both increased by 2.49 per cent to 8.7 per cent, while those worried by GMP equalisation rose slightly, from, 8.47 per cent to 8.7 per cent.

Butcher concluded: “Our first round of results for 2019 has uncovered some fascinating findings. At first sight, it’s surprising that a possible change of government has only had an uptick of just over 2 per cent despite it being far more likely in January 2019 than it was in October last year, while Brexit investment implications is down by just a fraction. But don’t take these results at face value.”

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