On the go: The number of trustees having to alter their scheme’s long-term plans in the past year suggests pension scheme strategies are “not fit for purpose”, according to new research.
Consultancy Barnett Waddingham surveyed 100 UK defined benefit trustees, and found a huge disconnect between expectation and reality.
While 92 per cent claimed “to be confident in the next stage of their scheme’s development”, in the past 12 months 88 per cent of schemes had been forced to consider a new strategy.
Exactly half of respondents reported having to make changes owing to maturity, 40 per cent due to covenant concerns, and 40 per cent due to regulations.
Delving further into these figures, 40 per cent of these were less than fully confident in their assessment of the employer covenant, while almost a third (31 per cent) lacked confidence in the working relationship between scheme and sponsor.
A further 81 per cent of respondents stated that the Pensions Regulator’s new funding code will also lead to a change in the way trustees look at their scheme’s strategy.
This frequent chopping and changing, which casts significant doubt on the worthiness of schemes’ planning and long-term strategies, is driven in large part by incomplete data and technological issues, the report found.
Though 79 per cent of trustees reported being confident in their scheme’s data quality, 30 per cent believed more could be done, and a similar proportion believed more investment in this area was warranted.
Finally, an astonishing number of schemes lack a written, codified strategy. While the report found most had a “sense” of a strategic vision, more than a third overall had no formal plans in place, rising to 42 per cent among schemes with £21m-£499m in assets.
A quarter of schemes with assets worth more than £1bn lacked a written strategy, the report found.
Paul Houghton, partner and head of actuarial consulting at Barnett Waddingham, said: “A DB scheme is very much like a piece of machinery with many moving parts; these parts need to be maintained by experts in order to keep moving and avoid the possibility of breaking down.
“There is a worrying amount of (what could be perceived as) false confidence from trustees administering their machine. Although confidence levels appear to be high in the overall strategy, there are a number of anomalies when we begin to drill down into the minutiae of the findings,” he continued.
The majority of schemes and trustees need to be honest with themselves about their strategies, about their level of knowledge, and about the quality of their strategies, Mr Houghton added.
“All schemes face numerous challenges. However, we were surprised by some of the issues causing trustees to change strategy, like scheme maturity, as they can easily be foreseen in advance using the correct technology and data.”
