INTRODUCTION

Design a strategic plan for your scheme

Jill Ampleford

Partner

Your scheme, your journey

What could have been a catastrophic year for DB pension schemes has ended remarkably well – our data shows that the typical scheme is around 5% ahead compared to pre-covid levels, with half of that coming from additional contributions.

But what’s the outlook from those involved in running schemes? To understand this, we undertook a survey and have gathered data from our client base. We will share insights and analysis from this with you in this report. Thank you, if you completed our survey - we really valued your views.

The survey also highlighted the surprisingly benign impact the Covid-19 pandemic had on most pension schemes – perhaps a testimony to the robust risk management controls many schemes already had in place (or to the fact that, despite a rocky 2020 for some, they have now found themselves in a much similar position to pre-pandemic).

However we are very aware that there are some schemes in more challenging circumstances - 32% of our survey respondents said that either their covenant, funding position, or both had deteriorated as a result of the pandemic.

What impact has the pandemic had on your scheme in the following areas?

“Schemes are thinking strategically and looking to the future. Journey planning and risk management remain a high priority for many.”

Jill Ampleford LCP Partner

Your report, your journey

This year’s report focuses on the various challenges and how you can overcome them and we have identified clear actions to make this a practical toolkit for you to refer back to. Our analysis and case studies highlight how schemes are in varied circumstances and have different priorities.

We have designed the report so you can look through the content in the order that suits you. You can go straight to the sections that are most important to you or use this as a reference to understanding the changing landscape of the DB pensions world and trustee duties. There are a number of areas where you can click through further, if you'd like to find out more, but don't need to, if it's less relevant to you.

“Over every mountain there is a path, although it may not be seen from the valley.”

Theodore Roethke

As highlighted below, setting and updating a long-term funding target framework remains high priority for many trustee boards whilst grappling with (and feeling rather overwhelmed by) a number of other projects, such as GMP equalisation, understanding the implications of the Pensions Schemes Act 2021, reacting to climate change requirements, putting in place an effective system of governance and the own risk assessment - and the list goes on. In this year's report we focus on how to move forward and address some of these new challenges, whilst not losing sight of your overall strategic objectives.

A NUMBER OF KEY THEMES EMERGED FROM OUR ANALYSIS:

Many are overwhelmed by the huge number of issues to consider in the coming months

Not least GMP equalisation and data (one of the top priorities from our survey respondents), the Pension Schemes Act, the Pensions Regulator’s new funding code and single code of practice. All of these could crank up time needed to be spent on Governance, although over 15% of schemes in our survey felt this had already improved over lockdown.

But trustees are working hard to manage the position and considering the long-term funding target framework was the most popular first priority in our survey

84% of schemes now have a long-term funding target, compared to around 75% in our survey last year. But the pace of getting there is very scheme dependent – the 29% of surveyed schemes on track to reach their long-term funding target within 5 years will have different priorities to the 32% who expect to wait more than 10 years to get there.

Understanding and managing a scheme’s risks remains key

Both interest rate and inflation hedging levels have increased (the average levels for both are now 82%) and over 40% of schemes in our survey have some form of contingent funding in place. However, there is still a lot to do to properly manage the risk of climate change – this could be an even bigger threat to schemes’ finances than Covid-19, yet nearly 30% of survey respondents favour a minimum compliance approach here.

It is not surprising if you’re feeling overwhelmed - it's key to decide where to focus first and to develop your strategic plan.

With so much going on, there is a risk of falling behind. But if too much is tackled at once, there is a risk of either being thrown off course or indeed failing to capture opportunities.

Favourable member experience or changes in financial markets can materially accelerate a journey and there is a risk of being unprepared to capitalise on this good news.

At LCP we love the challenge of helping our clients see the wood for the trees and develop a holistic strategy, making clear, actionable plans for their schemes, shaped by their circumstances and priorities.

Please get in touch with me or your usual LCP contact if you have any questions or would like any other information. Click here to find our suggested next steps and our contact details.