Employer covenant has remained the highest-rated defined benefit scheme risk among trustees, a PTL survey has found.

In its quarterly DB risk survey published today, 31 May 2018, PTL found that on aggregate 27.6 per cent, up from 24.76 per cent last quarter, of trustees believed employer covenant risk was the biggest risk to their scheme.

This was followed by 13.79 percent who see Brexit investment implications as the biggest threat, up from 10.95 per cent last quarter, as we near the end of the negotiation period “without any real clarity around what will happen to the markets”.

The survey, the third from PTL, also found that trustees worried about new deficit funding rules, which rose from 10 per cent in September 2017 to 13.22 per cent in May 2018.

PTL managing director, Richard Butcher, said: “In a world of integrated risk management, this will most likely result in reduced exposure to investment risk and more conservative funding valuations down the line.

“It’s also interesting that an increasing number of people think more stringent deficit repayment rules will be introduced – this probably comes in the wake of The Pensions Regulator’s 2018 annual funding statement where they made clear they expected trustees to be more robust in negotiating the balance between deficit reduction and dividend payments.

“These two combined hint at a cycle of far more difficult funding negotiations between trustees and employers.”

The survey also highlighted a noticeable drop in the number of trustees worried about longevity increases, falling from 12.86 per cent in September 2017 to 7.47 per cent on May 2018.

Furthermore, concern over cyber security risk rose from 7.14 per cent in the last quarter to 10.92 per cent this quarter.

Inflation was another risk highlighted by trustees, with 6.9 per cent worried about the issue, while 5.17 per cent named GMP equalisation as their main issue and 4 per cent said GDPR compliance was their biggest worry.

Butcher added: “A number of new issues were flagged under ‘other’ this time around which could collectively be grouped into the categories ‘compliance’ or ‘governance risk’. This may be reflective of TPR’s relatively new ‘quicker, clearer, tougher’ approach and the fact that more trustees are feeling the pressure of getting things wrong.”

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