TPR encourages trustees to remain vigilant to investment risk

The Pensions Regulator (TPR) has encouraged pension scheme trustees to ask questions and “remain vigilant” to changing strategic and operational risks.

In a blog post, TPR lead investment consultant, Fred Berry, suggested that asking questions, even 'silly questions', can be good tool to drive "interesting conversations", particularly around strategy and operations, which he emphasised are “both important”.

Berry pointed out that the conversations being had in both these spaces are changing, with investment strategy conversations increasingly focused on liquidity management in maturing schemes, income-generating assets, and liquidity waterfalls, for instance.

Operations conversations have also shifted, with Berry highlighting queries as to how schemes are handling liability-driven investment (LDI) collateral calls, and whether trustees are well-enough prepared for them.

"Anecdotally, we hear that some schemes may have been under-prepared, after years of falling interest rates in which LDI funds were paying collateral back to schemes," he continued.

"But we know that advisers were making trustees aware of the risks, and our DB investment guidance covers it too. As earlier, it’s best not to generalise from biased samples. We remain vigilant to the risks and expect trustees to do the same."

Berry stressed that this is not an exhaustive list of risks to consider, however, pointing out that trustees may also want to consider the implications of rising rates for investment strategy, and whether schemes should be reviewing their LDI strategies in the light of recent events.

Indeed, Berry said that it "almost goes without saying" that TPR expects trustees to monitor their scheme’s investment, risk management and arrangements on an ongoing basis and take action as appropriate.

He said: “We talk a lot at TPR about the importance of trustees and their advisers. We can’t be everywhere at once and rely on trustees as a first line of defence. ‘Silly’ questions lead to interesting conversations. It’s why I ask them.

"We remain vigilant to the risks and expect trustees to do the same...As always, it’s important for trustees and advisers to work well together to manage scheme risks.

"Questions are rarely genuinely silly. They usually serve a purpose. Seeking a better understanding of trustees’ actions. Or of a regulator’s viewpoint.”

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