More than a third (37 per cent) of defined benefit (DB) scheme managers and trustees are struggling to make decisions amid the uncertainty of the Covid-19 pandemic, a Willis Towers Watson survey has revealed.

The firm’s study of 90 UK DB schemes found that 22 per cent had diverted or delayed their strategic initiatives, and 11 per cent were struggling with having the time and resources to tackle pension issues.

However, only 8 per cent said that challenges posed by IT infrastructure and/or remote working were reducing committee effectiveness.

In responding to the fall in funding levels, 31 per cent of DB schemes surveyed said that they were considering extending the time horizons of their journey plans, while 36 per cent stated that they were not making any changes.

Around one in seven (15 per cent) said that they believed additional cash contributions from their sponsoring employers would be the best response.

Willis Towers Watson noted that this meant the majority of DB schemes will be “relying heavily” on achieving consistent investment returns over the long term, which emphasised the urgency for trustees to “ensure they have a robust portfolio construction process in place”.

The firm urged pension trustees and managers that were behind on their journey plan and/or have a weak sponsor to make growth assets as robust as possible by diversifying away from equities, hedge any unrewarded risks as far as possible, revisit their risk and return needs, and review roles and responsibilities.

Commenting on the findings, Willis Towers Watson UK Fiduciary Management Business head, Pieter Steyn, said: “Good governance sets organisations apart and in crisis situations such as we are facing in the midst of this pandemic, those schemes with good governance structures were better prepared going into this environment and will be better equipped to respond to stressed circumstances.

“Schemes may need to revisit their long-term strategy in the months ahead but any review should not get in the way of the need to diversify. The impact of this crisis on markets and economies may still have a long way to go and nobody can forecast a path out of it with a great deal of confidence.

“However, for schemes relying on investment returns rather than cash we would prefer much more diversified growth asset exposure at present; for example, diversifying away from equity assets into liquid alternatives to reduce risk.

“Crisis situations can also provide an opportunity to reflect by asking whether the portfolio is fit for purpose, whether the scheme was less protected than expected and whether the existing governance model worked optimally to enable trustees to adapt investments where necessary for these rapidly changing circumstances.”

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