Guest comment: Part 1 - Navigating the challenges facing DB schemes

Covid-19 has caused significant disruption to economies worldwide, with policymakers, businesses and individuals dealing with a wide variety of challenges brought about by the rapidly evolving situation.

Defined benefit (DB) pension schemes will face a number of challenges including: assessing their covenant strength, their funding, investment strategy, day-to-day governance and communicating in a fast changing environment to members.

Trustees will already have taken some immediate steps, but here are some key points the PLSA believes trustees should focus on:

Administration: Trustees should already have a clear sense of their in-house or outsourced administrator’s business continuity plans but should examine its resilience and whether the government’s advice on ‘key workers’ has been applied. Regular updates from their administrators regarding core financial transactions and service levels will also be essential.

Communication: Scheme members will look to their plans and employers as a trusted, expert source of guidance on the impact of Covid-19 on their savings. They should, therefore, review and prioritise communications policies. In particular scheme should step up efforts to protect members from scammers who might seek to exploit wider uncertainty.

Funding: The market turmoil in the wake of Covid-19 has a number of implications for funding, from its impact on both the assets and liabilities side of the balance sheet to the financial health of the scheme sponsor. Trustees should ensure they are receiving up-to-date information and in regular dialogue with their sponsor, as well as ensuring they are aware of the latest guidance from The Pensions Regulator, and the Pension Protection Fund.

Governance: Trustees should already have robust governance arrangements in place. In addition to this they should also have a strategy in place for future meetings, prioritising key tasks, and operating in line with scheme rules during this period of disruption, With greater remote working additional focus on cyber security will also be important.

Investment: Covid-19 has unleashed significant volatility in global markets and a sharp fall in every major stock market. Trustees, therefore, should consider the impact on their strategies, whether they and their advisors are in a position to react quickly to short-term risks and opportunities, as well as the longer-term impact on their assumptions of an economic downturn.

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