Pensions Aspects Edition 45 | October 2022

Your Majesty,

The Pensions Management Institute has been deeply saddened to learn of the death of Her Majesty Queen Elizabeth II.

On behalf of all our staff and members, we would like to offer our sincere condolences and deepest sympathies to you and all the Royal Family for your loss. We also want to give thanks for Her Majesty's service and dedication to the nation throughout her 70-year reign.

The Pensions Management Institute's thoughts are with you and the Royal Family at this time of great sorrow.

Features

12

Fiduciary Management Democratises Private Credit

Schroders Solutions’ Ajeet Manjrekar outlines how private credit can improve certainty of outcome for UK DB schemes approaching their endgame.

14

The New Code of Practice – Keeping Up Momentum

Barbara-Ann Thompson FIA Assesses the potential impact caused by the delay in publishing the new (combined) Code of Practice.

16 Collective Defined Contributions (CDC) the Day

Lifelong Learning Director Dr Keith Hoodless highlights the strengths of the emerging Collective Defined Contributions pension market.

20 A Wolf in Sheep’s Clothing – the Draft Funding Regulations

Aon’s Head of UK Retirement Policy Matthew Arends looks at potential threats hiding within the DWP’s draft funding regulations.

22

18

Strategic Investment Objectives: High Time to Act

Peter Dorward asks what action trustees have taken since the CMA Consultancy and Fiduciary Management Market Investigation Order.

Survey Results Reveal the Major Concerns Trustees have for Retiring Members

Johnathan Watts-Lay and Tim Middleton discuss key findings and concerns from WEALTH at work and the PMI’s recent joint survey.

Month in Pensions

Proactively Managing Your Advisers

Barnett Waddingham LLP’s Joanna McCulloch

why trustees should have

28

Increase in Normal Minimum Pension Age –How Can Trustees Prepare?

Sackers Associate Sarah Clay breaks down how trustees can prepare for the upcoming increase in Normal Minimum Pension Age.

PMI Update

06 Membership update

08

PMI Academy update

09 Regional news

breakdown

10

PMI Events

Listing

latest

Re-Thinking The Management of Committed Capital

T.Rowe

Positioning Pension Schemes for the Net Zero Transition

BlackRock

how

34 Pension Conundrum

Our regular

36 Service Providers

39 Appointments

Contacts

Head office

Commercial

Learning

6

Your membership, what's happening?

Affiliate Membership Subscription for 2022/23 is £100

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(This does not include those affiliated to a Corporate Membership)

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Your membership is due for renewal on 1 January 2023 and subscription renewal notices will be sent by email to members in November 2022

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Membership Upgrades

Have you recently successfully completed a PMI qualification? Then you may be eligible to apply for your membership upgrade. This membership offers you relevant recognition for carrier and professional progression, and also access to designatory initials. We are pleased to announce that the following people have been elected for an upgrade.

CertPMI: David McPherson

Robert Kerr Kelly Ann O'Donnell

APMI: Evan Ainsworth

James Barbour Kelly Whitworth

Fellow membership

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Continuing Professional Development (CPD)

Congratulations to all Associates and Fellows who have started to complete their 2022 CPD. Fellows and Associates are reminded that their CPD becomes due on 1 January 2023; meeting the PMI CPD requirement is compulsory (except where retired/non-working). Under our CPD Scheme, PMI members are required to record at least 25 hours during the year. Please log on to your MY PMI member portal and update your Membership CPD record.

Congratulations  PMI spring exam learners!

London Regional Update

Martin Lacey Communications, PMI London Regional Group

The PMI London Group Committee would like to thank everyone who attended our online AGM on Wednesday 13 July. We were pleased to welcome Louise Grindley, Natalie Mee and Lisa Riordan to the Committee. Niamh Hamlyn, Mark Jenkins, Sarah Miller and Emma Watkins stood down from the Committee at the AGM, and we’d like to thank them for all their work and support. The London Group Committee members for the upcoming year are:

Chair

Amanda Burden

Secretary

Giles Bywater

Business Secretary

Jonathan Gilmour

Business support

Nathan Jones

Please also hold Wednesday 16 November in your diary for our ever popular annual pub quiz. Remember to keep an eye out for details of our upcoming social events and business meetings via the PMI London Group LinkedIn Group.

Natalie Mee

Lisa Riordan

Social Secretary

Education

Mike Kelly

Education

Andrew Riley

Louise Grindley

Martin Lacey

PMI Events

Event(s)

to the Trustee

Dates Event(s)

effective investment governance

the context of the

Code of

October

to the Trustee

October

October

zero in practice

Market update on sterling interest rates and inflation

October

October

Annual Lecture

Pinnacle

Londoner Hotel,

Leicester Square, London WC2H

of External Funds

Managers

and Admin Summit

Strategic Investment

tick box or driving continuous improvement

and Investment Seminar

Wood Street,

Fiduciary Management Democratises Private Credit

Ajeet Manjrekar

Head of UK Client Solutions, Schroders Solutions

For the UK Defined Benefit (DB) pension schemes moving towards their end game, private credit can improve certainty of outcome whilst helping meet cash flow needs. Accessing a diversified private credit strategy, delivered through a Fiduciary Management solution, is now a reality that schemes of all sizes can take advantage of to meet their long-term objectives.

Private credit is no longer just for large investors

Private assets have been popular with endowment funds and large institutions - including sovereign wealth funds and government pension plans - for some time.

However, more recently, private credit has been attracting increasing interest from other institutional investors, such as DB pension schemes. In 2013, only 2% of European DB pension schemes had an allocation in this area, compared to 21%1 in 2021. Allocations are still low overall, but growing, as investors have sought the potential to earn a return pickup over traditional public credit.

Importantly, private credit is no longer just for large institutions. Fiduciary management can provide schemes with access to a transparent, cost effective and easy to govern solution. Through fiduciary management, schemes of all sizes can improve their certainty of outcome through a diversified portfolio aligned to their return objective, cashflow needs, and endgame strategy. But what is private credit? How do you access it? And what are the benefits?

What is private credit?

Private credit refers to any credit (non-sovereign) instrument which is not issued or traded in an open market. Although simple in definition, the private credit universe comprises a diverse array of strategies which can perform a range of roles within a scheme’s portfolio.

The most common and largest private credit asset classes include infrastructure debt, direct lending and real estate debt. These asset classes are typically illiquid. Therefore, schemes need to go into this asset class with the mindset of holding the asset to maturity rather than potentially disinvesting in a year or two.

• Direct lending = lending to a small or medium-sized company.

• Real estate debt = lending to a company for the purchase of real estate.

• Infrastructure debt = financing infrastructure projects such as a toll road, or a wind farm.

How does private credit benefit DB schemes?

As DB pension schemes mature, their focus typically moves from generating returns to reducing risk and meeting cashflow requirements. Private credit can help achieve these goals in several ways:

1. Improve certainty of outcome

Credit assets, by nature, have a narrower range of outcomes than traditional growth assets, such as equities. We know the yield at the point of purchase, which delivers a greater certainty of outcome that's favourable for maturing schemes. Providing you have a sensible assumption for defaults, you have greater clarity of the return you're likely to get.

2. Attractive risk/return properties

Relative to public credit markets, private credit can offer diversification, higher returns, lower volatility, and greater security. Note this comes at the cost of liquidity. Schemes should invest in private assets with the expectation of holding to maturity. Therefore, any investment should be of an appropriate size, given a scheme’s liquidity budget. Developing an exit strategy is also key to ensure the investment doesn’t derail a scheme’s journey plan.

3. Utilise cashflow to meet benefit payments

A key benefit of investing in credit is the ability to use principal and coupon payments to help meet benefit payments and expenses. Together with any company contributions and other sources of income, such as public credit, private credit is a helpful tool in managing cash flow requirements. As we can build a portfolio of private credit assets with returns akin to growth assets ( c. cash + 3%-4% p.a.), schemes can increase the amount of cashflows explicitly matched without compromising on their overall return target.

How do schemes access private credit?

Accessing private credit can be quite challenging. It can be very hard for smaller investors to access many of the best managers. They often prefer to work with larger investors who can commit larger amounts of capital. But making sure you have access to managers with the right expertise is important. Take direct lending and infrastructure debt, for example - those two skill sets differ completely from one another. You need access to specialists.

Fiduciary Management makes it possible for schemes of all sizes to gain access to a diversified private credit portfolio. By pooling investments, the Fiduciary Manager can access the best opportunities that might otherwise be out of reach. Pooling investments can also result in a lower cost than would be available to individual schemes. The only governance burden for the trustee board is in selecting and monitoring a single manager, the Fiduciary Manager, rather than several underlying investments.

Private credit can offer a win-win of maintaining returns and increasing the certainty of outcome. Whilst interest has grown, many investors have yet to allocate to this area.

However, many of the reasons behind this reticence are practical rather than investment related. This does not have to be the case. Fiduciary management opens a door for pension schemes of all sizes to gain access to this exciting area.

Important notice

The material is not intended to provide, and should not be relied on for accounting, legal or tax advice, or investment recommendations. Any reference to sectors/ countries/ stocks/ securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/ securities or adopt any investment strategy. The views and opinions contained herein are those of the individual to whom it is attributed and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. Insofar as liability under relevant laws cannot be excluded, no Schroders entity accepts any liability for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise).

The New Code of Practice –Keeping Up Momentum

Barbara-Ann Thompson FIA Partner, Barnett Waddingham LLP

With everything else going on at the moment, the delay in publishing the new (combined) Code of Practice should at least allow trustees to take the focus off scheme governance for a little while.

Right?

Actually, no! Whilst it is understandable that current levels of inflation, rising gilt yields and other matters such as pension dashboards might distract trustees, our experience shows that the best run schemes are those embracing the new Code. Better governance leads to better outcomes for members.

Trustees and sponsors should keep focussed on ensuring their Effective System of Governance (ESOG) is fit for purpose, using this “down time” before the new code is published wisely. Doing this work now, while there is a bit of breathing space, will improve engagement in this important issue, and avoid a mad rush later down the line. There is also the added bonus that if you sort out your governance now, your journey towards the end game will be so much smoother.

For most schemes, compliance with the new requirements should not be overly onerous – with appropriate documentation and a bit of gap filling being the main work to be done. The challenge is to engage those schemes where governance is lacking (or in some cases non-existent), or schemes with low governance budgets, meaning policies and procedures have not been reviewed recently and are probably well out of date and not adding any value (and increasing operational risk).

Our message to clients is one of evolution, not revolution – we are looking to make the job of assessing compliance with the new Code efficient and flexible, as well as interesting and engaging! Prepare well now, and you will make life much easier when the new Code is finally published and the new requirements, such as preparing an Own Risk Assessment (ORA), kick in.

So what can you be doing now?

Under the new Code trustees will need to establish an ESOG, which includes documenting internal controls that are already required by the 2018 Governance Regulations.

Most schemes will need to step up their governance to comply, although the ESOG should be proportionate to the size and complexity of the scheme and the nature and scale of the risks to which it is exposed (hopefully giving some comfort to smaller schemes). This is a chance to really understand and improve the processes that make the scheme tick.

Good governance is the key to a well-run pension scheme but it does not have to be complicated. Importantly, this is not an opportunity for advisers to dream up large, expensive projects. Yes, there will be work to do – but the value will come from exploring whether what you have works or needs improvement, rather than reinventing the wheel.

As a first step, trustees should think about just how effective they and their policies/processes are. To ensure this is as comprehensive as possible, advisers and sponsors should be included in these discussions. Investing an appropriate amount of time now will enable trustees to spend more time later on strategic thinking and achieving the best possible outcomes for their scheme and its members.

Just how good is your trustee board?

It is hard to see how trustees can be confident they have an effective system of governance without first checking they themselves are effective as a board - but pension issues are complex and most trustees juggle their scheme responsibilities with competing demands on their time. This often means that agenda time is at a premium, so having an effective board is essential to ensure that the trustees focus their time and budgetary resources on key strategic priorities.

A periodic review of how trustees are operating collectively is time well-invested and is an essential requirement for a well-run scheme. It is also important to remember that this is about how the group operates optimally as a whole, not individually. It will also allow trustees to review how they get the best support from their advisers.

A significant part of the exercise should involve identifying how to make (sometimes small) improvements that enhance the quality and speed of decision-making, and ensure actions are implemented. Trustees should also review their governance in the light of changing circumstances, bearing in mind that what has perhaps worked well in the past may not necessarily be appropriate now and in the future.

Swarm AI

The latest addition to our technology offering is BW Swarm AI. This is an Artificial Intelligence platform which empowers teams such as trustee boards to amplify the wisdom, knowledge and intuition of the combined group to help make better decisions, facilitate discussion and remove bias.

The technology is based on the biological principal of Swarm Intelligence identified in nature, and we have exclusive use of the platform in the UK. We have developed BW Swarm AI packages available for a range of topics including scheme governance, investment, and actuarial funding. This technology can be used to help complete the ESOG framework, risk register and prioritise scheme governance.

An example of how a trustee board can review their effectiveness collectively as a board without any bias is demonstrated below. It is a tool that provides for a more focussed and engaged session on governance than a typical questionnaire, and focusses attention on the key issues for clients.

Does the Trustee board represent a mix of skills and pension experience?

Collective Defined Contributions (CDC) the Day

Dr Keith Hoodless Director of Lifelong Learning, Pensions Management Institute (PMI)

When asked “what would be the best framework for a private pension system in the UK?” most of those interested or who understood said they wanted a pension system into which they could save their money, which they could trust would provide them with a retirement income. Some wanted greater involvement and choice. But for most, the desire was to “give their money to someone they could trust” which would then provide an income from retirement until death. In other words, a trustworthy default pension system which would maximise income in retirement.

Until this year the choice of a low-cost pension designed to provide an income for life was denied to most people in this country, despite the success of similar arrangements elsewhere in the world. For those working in the private sector, Defined Benefit (DB) pensions, which paid a guaranteed income, are generally no longer available.

Employers argued that the cost of the guarantee was too high or too risky for them to support. They have been replaced by Defined Contribution (DC) savings plans, which give the saver a capital balance on retirement that can be drawn down during retirement or used to purchase an (expensive) insured annuity which will provide a guaranteed lifetime income.

Collective defined contribution (CDC) pensions offer a middle way, designed to provide a lifetime income but without the costly guarantees of DB or annuities. In the past CDC was not permitted in the UK. However, with the introduction of the Royal Mail Collective Pension Plan and the accompanying legislation in the Pensions Schemes Act 2021, the UK could build a pension architecture that should be able to deliver better pensions for current and future generations.

The key advantage of CDC pensions is that they are designed to give “an income for life in retirement” while remaining within the DC framework.

In the UK where many DB Schemes are closed or closing, with many DC schemes not delivering the income needed in retirement, CDC provides fresh hope for the future of British Pensions.

Currently only one employer, the Royal Mail (supported by its union, the CWU), has publicly announced their intention to implement CDC. However, with secondary legislation still to be written, and as we move from Master Trusts to Super Trusts, it is important that there is a consensus on the next steps in the development of CDC.

The Pensions Management Institute (PMI), as you would expect, is developing its product base to align with CDC Pensions and has developed an outline framework for Pensions Practitioners of CDC Pension Schemes. The outline approach so far is of:

1. The role of Collective Pensions Schemes

2. The predictability of retirement income from CDC in comparison to standard DC schemes

3. Fitting CDCs into the UK Pensions landscape

There is still a way to go before we get this to market, and we are still discussing content, but I would be glad to discuss this with anyone who wished to contact me, and you can do so through the normal channels.

Delve into a world of pensions content

Strategic Investment Objectives: High Time to Act

Peter Dorward Managing Director, IC Select

It’s now almost three years since the Competition and Markets Authority (CMA) issued the Investment Consultancy and Fiduciary Management Market Investigation Order. The order requires the trustees of defined benefit (DB) pension schemes to do three things: set strategic investment objectives for their investment advisers (IAs – including both investment consultants and fiduciary managers); review IAs’ performance every 12 months; and review the objectives at least every three years. So – three years on – what have pension trustees done?

Market feedback suggests many have done the bare minimum. They will have agreed some objectives with their IA. And they may have made a few tweaks since.

But that’s not good enough –especially if those objectives were suggested by the IA. And if IAs are leading the reviews, they’re being allowed to mark their own homework.

An end to asymmetry

For decades, pension trustees and their IAs have been locked in an asymmetrical relationship – one in which the IAs hold all the cards. Pension schemes have not always profited from this; despite the strong performance of equity markets for decades and the sharp rise in bond yields this year, 28% of UK DB schemes are still underfunded.1

The whole point of the CMA order was that trustees should challenge their IAs rather than meekly accept the advice provided and the resulting performance.

So, if trustees haven’t challenged their IAs, they risk letting their members down.

Putting the trust back in trustee

The clue’s in the name. Being a trustee is all about the trust that scheme members place in you. Remember, trustees are legally obliged to treat the scheme’s assets as they would their own, whether they are a sole trustee or part of a trustee board – with all the scrutiny and effort that implies. Not only are trustees already required to meet the CMA regulations, but from this October, DB schemes’ investment objectives will be under the scrutiny of the Pension Regulator.

As this year’s steep falls in bond and equity markets show, it’s no time to be asleep at the wheel. Good IAs earn their keep in down markets. So it’s high time to get real value out of the process.

RAM it home!

What does best practice look like here? Well, it’s crucial that objectives are realisable, actionable, and measurable (RAM), so trustees should ensure that their framework for assessing the objectives meets this standard.

As we at IC Select never tire of repeating, you can’t value what you don’t measure.

That’s where a ‘balanced scorecard’ comes in. This is a framework that allows the various aspects of an IA’s performance to be assessed in aggregate, with each outcome given an appropriate weighting. This allows both a qualitative and quantitative assessment of an IA’s performance – which in turn allows a comparison with other IAs. And not just the financial performance but quality of advice, communications, ESG and reporting. That equips trustees with the information they need to get the best for their members.

All of this takes effort. But that effort can pay off. Research suggests that good investment governance adds value (up to 2% a year)2, and performance-related assessments of IAs offer trustees the chance to renegotiate fees.

Feature

A Wolf in Sheep’s Clothing –the Draft Funding Regulations Matthew Arends Head of UK Retirement Policy, Aon

It is difficult to argue with the principle that the more mature a defined benefit (DB) pension scheme is, the better funded it ought to be and the lower risk its investment strategy should be relative to the liabilities. That is exactly what the draft funding regulations from the Department for Work and Pensions (DWP) aim for, supported by the relevant parts of the Pension Schemes Act 2021. That’s the metaphorical sheep that is open for consultation until 17 October 2022. But look closer and there are some very much more threatening lupine features underneath the ovine exterior.

At the heart of the new funding regime sits the requirement for trustees and employers to agree a “Statement of Strategy”. This details the plans to ensure that scheme benefits can be provided over the long term. Here, the “long term” is defined as the time the scheme reaches “significant maturity” (it is heavily implied that the Pensions Regulator (TPR) will equate this with a liability duration of 12 years). The Statement of Strategy will define what it means to be fully funded by that time and the investments to be held then. It will also include the journey plan to get there and monitoring of progress along the way.

The immediate issue with this is that the requirement to ensure full funding on a low dependency basis by the time of “significant maturity” means that, in broad terms, every closed DB scheme will have a diary date by when they must reach full funding with low-risk assets. It also means that if investment returns do not bridge the funding gap over the intervening period, contributions will be required. The consequence is extra contributions on employers.

Deficits will in future - by law - have to be restored as quickly as is affordable. In other words, will some employers have to restore deficits immediately – no spreading? That is a very significant change from the current system where affordability is one of several factors trustees and employers take into account in reaching a valuation outcome.

One also assumes that recovery plans can continue to be calculated taking into account expected returns, rather than those implied by the prudent discount rate, although the regulations are silent on this point. If not, that will be another blow to employers.

As mentioned, the Statement of Strategy must be agreed with the employer, which means the employer has input into the long-term investment strategy. This is new – currently, trustees have unilateral powers over investment decisions – and it is unclear how these competing powers reconcile.

The draft regulations are silent on many significant matters – presumably the gaps will be filled in by TPR’s Code. This means that it is difficult to interpret exactly what is intended, but there are hints of other material changes, no more so than when it comes to assessing employer covenant. Among other things, the regulations define covenant strength in terms of cashflow generation. This means that employers with strong balance sheets but low profitability, whether permanent or temporary (for example, during a repeat of COVID), will be defined as having weak covenants, whereas typically that has not been the case to date.

Contingent assets and the material support they provide to the security of many members’ benefits are incompletely recognised.

Schemes that are already “significantly mature” are not mentioned. What if they have deficits on the low dependency basis? Must those be made good immediately by contributions?

Open schemes present another difficulty. However ‘young’ they are, they must comply with the requirement to have a Statement of Strategy and assess their duration based on accrued liabilities. Will this lead to them being obliged to reduce growth asset allocations? It is unclear.

Why are these wholesale changes to the funding regime warranted? TPR’s original objective was to be able to regulate the outliers under the current regime more effectively. The difficulty is that the regulations as drafted will have implications – potentially very serious ones – for all DB schemes. And the most concerning thing is that there is no proper impact analysis provided along with these draft regulations.

Industry comment to date has been increasingly negative. While the regulations were no doubt well-intentioned, the unintended consequences of them are emerging –potential additional costs on employers, potential sales of equity and growth asset investments and worsening of covenant ratings.

Against this backdrop, schemes and their advisers should react now by responding to the consultation with their concerns over the direction of travel and not wait until we have TPR’s second funding code consultation. Scheme-specific funding should mean what it says. There is a real risk we are on a path to losing that.

Survey Results Reveal the Major Concerns Trustees have for Retiring Members

Jonathan Watts-Lay Director, WEALTH at work

Tim Middleton Policy and Affairs Director, Pensions Management Institute (PMI)

WEALTH at work has conducted a survey with the Pensions Management Institute to investigate the concerns Trustees have for their members in the run up to their retirement and what support provisions they have in place.

Jonathan Watts-Lay, Director, WEALTH at work, comments:

“As the findings show, nearly all Trustees fear their members nearing retirement will face predatory attention from scammers. The strain on household finances caused by the cost of living crisis could mean that some members are more vulnerable than ever this year.”

He adds: “Trustees also have fears around taxation for their members at retirement. They are right to be concerned, as individuals can easily incur huge tax bills unknowingly when accessing their pensions, all of which can have a material impact on income levels in retirement. There are various strategies which can be taken to create tax savings opportunities, but members may not be aware of them.”

Watts-Lay comments: “These risks also equally affect defined benefit members who are considering transferring their pension. Indeed, the majority of Trustees in our survey have concerns over this. It’s unclear yet if the measures put in place to enable Trustees and scheme managers to block or pause suspicious transfers have helped the situation. However, whilst this might be an effective measure to help prevent pension transfer scams, there is still the issue of people needing a clear understanding of whether the pension transfer they are planning to make is suitable and how to manage the money once transferred.”

Watts-Lay states: “When we consider all these risks, it’s unsurprising that so many Trustees are concerned that their members’ money will not last the duration of retirement. This may be due to not saving enough throughout their life. The Pensions Policy Institute published a report warning that most of those currently over 50 do not have adequate funds to achieve a ‘comfortable’ retirement as defined by the Pensions and Lifetime Savings Association. Additionally, the pension freedoms and the shift from defined benefit to defined contribution pensions has very much put longevity and investment risk in the hands of individual members, and poor decision-making at

can be far too easy.”

Support levels are encouraging – but more can be done

The survey found that half of Trustees provide financial education (50%) for their members at retirement, and almost half (48.5%) of Trustees provide or facilitate financial guidance for members at retirement.

Nearly two out of five (39%) Trustees are facilitating regulated financial advice for their members. Encouragingly, this has seen a 9 percentage point increase from 30% since the survey was last carried out in 2021.

Watts-Lay comments: “The financial decisions that members need to take are increasingly complex. Pension Freedoms which came into force in 2015 have firmly put the control in the hands of individuals, but with this comes increased risk. It is likely that those who do well are those who are the most informed. Unfortunately, many find this whole area very confusing and are fated to make mistakes. As more and more people retire on defined contribution savings alone, this situation will only worsen unless these challenges are overcome.”

He adds:“This against the backdrop of a global pandemic, and more recently the cost of living crisis, will only add to the already significant challenges that members and schemes face. In the current climate, it is not surprising to see that Trustees have so many concerns for their pension scheme members as they approach retirement.”

Watts-Lay explains: “It’s encouraging to see that a significant proportion of Trustees are providing support in terms of financial education, guidance and regulated financial advice to alleviate some of the risks at retirement. Many of the Trustees surveyed are concerned over a lack of engagement with their members, but financial education and guidance can overcome this. Whilst information may be provided via a website or leaflet, if’s far more engaging for individuals to have someone to actually speak to about their pension savings. This could include face-to-face seminars or digital solutions such as interactive online seminars, or even financial coaching over the telephone.”

He adds: “The earlier that support is provided in an individual’s life, the more likely they are to make better decisions. Also, income needs are likely to vary throughout what may be 25 years or more in retirement, and cognitive decline may hinder decision-making, meaning that ongoing support is likely to be required.

"Carrying out due diligence on providers can make the process far more robust. This should include checking that any financial education and guidance providers are workplace specialists with experience in providing support to members. Due diligence on regulated advice firms should cover areas such as the qualifications of advisers, the regulatory record of the firm, compliance processes (e.g. compliance checks of 100% of cases), pricing structure and experience of working with employers and Trustees.”

Watts-Lay concludes: “Ultimately, empowering members by providing them with access to appropriate support at the right time can improve financial capability and resilience, which should result in better retirement outcomes for all.”

Tim Middleton, Policy and Affairs Director, Pensions Management Institute (PMI), comments:

“The range of choices available – and the increasing scope for mistakes and exposure to fraud – has made Trustees aware of the duty of care that they have to members approaching retirement age. The minefield of choice has given members the opportunity to use their retirement benefits in ways that closely match their specific requirements. However, with this choice comes a range of risks. Members are commonly unaware of the tax implications of their choices, and many fail to understand the nature of longevity risk.”

About the survey.

The survey conducted by WEALTH at work and Pensions Management Institute received 64 responses from a range of Trustees. It was completed online from January to April 2022. Figures have been rounded to the nearest whole number or to 1 decimal place where necessary.

Click here to see the full results report.

Solving your biggest challenges

Working in partnership with you, our highly experienced Fiduciary Management team can solve some of your most acute challenges. Whether you need to develop a long-term strategy, improve returns, or manage cashflow requirements – we can help you achieve your investment outcomes.

Speak to Schroders Solutions to find out more. www.schroders.com/fiduciarymanagement

Please remember that the value of investments and the income from them may go down as well as up and you may not get back the amount originally invested.

Your capital is at risk when investing. Past Performance is not a guide to future performance and may not be repeated. Issued by Schroders IS Limited (SISL), 1 London Wall Place, London, England, EC2Y 5AU. Registration No. 03359127 England. Authorised and regulated by the Financial Conduct Authority. Schroders Solutions is a trading name of SISL.

Proactively Managing your Advisers

Joanna McCulloch Associate and Senior Pension Management Consultant, Barnett Waddingham LLP

Are your advisers giving you practical, proactive and timely advice, performing as expected and providing value for members? Are your systems and member services high quality and comparable to others in the market? Undertaking periodic adviser reviews is a good way to check. This article explores why trustees should have an Adviser Management policy and what it should include.

Trustees appoint a variety of advisers and service providers to help them fulfil their duties and responsibilities. Importantly, the trustees retain ultimate accountability, so they need to be confident that they are receiving a high-quality service and good value for their members.

Undertaking adviser reviews is clearly good governance, and most schemes will carry out some form of review of key advisers on a regular basis. The Pensions Regulator’s (TPR’s) draft new single Code of Practice (new Code) has several expectations around adviser management and assessment, as part of the requirements for trustees to maintain an Effective System of Governance (ESoG). If they don’t already do so, trustees should now document their process for the ongoing management and periodic review of advisers.

Such a policy will form part of the scheme’s ESoG and help ensure:

• transparency – a record of who? how? when?

• consistency – agreed principles applied across different advisers

• adequate time and resources are being devoted to managing relationships

• quality issues or dissatisfaction are avoided or resolved promptly

So what should an Adviser Management policy cover?

The policy should cover the trustees’ overarching approach to the selection, appointment, management and replacement of advisers and service providers and should be proportionate in relation to the size, nature, scale and complexity of the scheme. For some schemes this may just be checklists of things to consider, but others may want a more detailed policy.

Selection Appointment Management Replacement

The new Code of Practice sets out TPR’s expectations in each of these areas.

• SELECTION: the trustees’ approach to choosing a new adviser. This includes the scope of the adviser’s role and responsibilities; delegation; experience and skill set required; and due diligence.

• APPOINTMENT: the things to have in place following a new appointment. This includes Letter of Engagement; Terms of Business; AML; service level agreements/key performance indicators; fee structures; delegation, procedures for referral; data sharing/GDPR.

• MANAGEMENT: the process for ongoing review and management. This includes regular assessment against key performance indicators and service level agreements; processes for ensuring improvements are made if service is poor; and continuity plans for changing providers/provider failure.

• REPLACEMENT: the key considerations when changing advisers. This includes scheme members’ interests; the impact of contract Ts&Cs; and risks of transitioning.

Month in Pensions: Legal

Increase in Normal Minimum Pension Age –How Can Trustees Prepare?

Sarah Clay Associate, Sackers

First announced in 2014, legislation has now been passed to implement the increase in Normal Minimum Pension Age or “NMPA” from 55 to 57 with effect from 6 April 2028. So how can trustees prepare for the increase?

What is NMPA?

NMPA is the earliest age at which a member can generally take their benefits as an authorised payment from a registered pension scheme. It is currently age 55 and will increase to 57 with effect from 6 April 2028.

Protected Pension Age

Individuals will still be able to take benefits before NMPA if they have a “protected pension age” or “PPA”.

Some individuals may already benefit from a PPA, stemming from when NMPA increased from 50 to 55 in 2010. A new PPA regime will give certain individuals a PPA of between 55 and 57.

The conditions for qualifying for a PPA of between 55 and 57 are set out in legislation. Broadly, an individual will have a PPA if:

• they were a member of the scheme before 4 November 2021

• they had an “actual or prospective right” to take benefits before age 57, and

• that right was set out under scheme rules in force on 11 February 2021.

Whether a member has such a right can be complex, and scheme rules will need to be checked carefully. But, essentially, a PPA can apply when a member has a right to take benefits from a specific age without needing another party to agree.

As with the existing PPA regime, a member’s PPA will be preserved on a “block transfer”, subject to certain conditions. In such cases, a member’s PPA will apply to all benefits.

In contrast to the existing regime, a PPA of between 55 and 57 may also be preserved on an individual transfer, in light of the retirement flexibilities available since 2015. But the protection will only apply to benefits built up before the transfer. However, the legislation is complex and some details of how it will work in practice remain unclear.

What should trustees be doing now?

Although the increase will not take effect until 2028, there are steps trustees can take to prepare. Trustees should:

1. review their rules to assess what the NMPA increase could mean for their members

2. consider how and when to tell members. Whilst the legislation could be clearer, schemes should inform members of the increase at a convenient point in the near future, for example in the next member newsletter, and

3. consider what updates may be required to scheme communications, including transfer packs, particularly where members might benefit from a PPA of between 55 and 57.

In due course, trustees should also consider whether to amend their scheme rules to bring them into line with the new NMPA. However, there is no rush to make any rule changes, as we are awaiting HMRC guidance and it is possible that statutory transitional provisions could be made before 2028.

Re-thinking the Management of Committed Capital

Michael Walsh Solutions Strategist, T. Rowe Price

Private assets investing is an increasing feature of institutional investor portfolios. It is no longer the preserve of ‘multi-generational’ investors such as endowments, foundations and sovereign wealth funds. The reasons for the increased allocation are varied, but the primary motivation is the prospect of enhanced total return. More democratic access as smaller investors began to gain access via multi-fund providers has resulted in wider investor interest and an increase in demand. Defined benefit pension schemes are participating in this trend with vigour.

UK pension funds have made much progress over the last couple of decades on the governance of all aspects of managing their asset pool; does anyone remember the Myners Principles set out back in 2001? This includes steps taken to ensure the sound management of portfolio switches within or between listed asset classes – for example equities to equities or equities to fixed income. The increased scrutiny in this area has resulted in more efficient management of asset and manager transitions to ensure that transaction and market impact costs are minimised and risks, particularly out of market risk, are properly managed.

This paper asks if the allocations to private assets are enjoying the same level of sound governance, and whether there is adequate attention being paid to the many frictional costs and risks of switching from generally listed legacy assets to the ultimate destination in private markets. Given that the capital commitments to private assets are contractual but are likely to be drawn down and invested over a period of years, we posit that this issue is of increasing relevance. Further we understand that the increased demand for private market assets is resulting in delays to the expected commitment timetables; this amplifies the challenge of the management of the ‘dry powder’ of committed but yet to be deployed capital.

Important Information

Past

So, what are the issues that require attention?

In our view, the governance and operating challenges are:

• In liquid markets a manager switch or asset class change by a pension fund takes place at the effective date decided by the Trustee/Board, with the performance measurement clock starting from the effective date. This approach is not possible in private markets as it takes a number of years to fully deploy the committed capital. So where should the ‘money waiting’ be invested whilst awaiting deployment? Should it remain invested in the legacy asset, be invested in cash or something else, such as a viable proxy for the destination asset?

• What are appropriate expectations for the return and the tolerance to risk of the ‘money waiting’? The modelling that will have resulted in the increased allocation to private markets will have assumed an ‘immediate’ switch from the legacy to the destination private markets asset. The longer it takes to deploy the capital the further away the outcomes will be from the modelling results that drove the allocation decision. Ideally the money waiting should be generating a good return. But the commitment is an absolute amount and the notice period can be a matter of a week, so what are appropriate volatility and liquidity budgets?

• The success of a private markets programme is currently judged largely on the money-weighted returns delivered by private assets managers in the form of Internal Rate of Return or ‘IRR’. However, this calculation focuses only on the returns generated on capital once it has been deployed - it does not take into account the return on the capital whilst waiting to be invested. This leaves the return generated and risks incurred by this ‘money waiting’ to be accounted for elsewhere within the investor’s portfolio as an unintended consequence. “This raises a fundamental governance question – should the returns, risks and real opportunity costs of the ‘money waiting’ be included in measuring the success of the fund, or indeed the overall

programme?” The key governance question is ‘what is the correct measure of success for the private assets programme?’ We believe that the outcomes of the complete investment journey across both money waiting and money invested should be considered alongside those of money actually invested in private assets.

• Once the programme is mature, distributions from the programme are likely to occur at the same time as commitments to new programmes take place. Are cash flow management processes adequate to capture the additional complexity of managing this process? Should the cash flow process include cash flow across the entirety of a fund such as net contributions, dividends and coupons?

These challenges are not new. A number of different approaches are adopted. Some are ad hoc and pragmatic, some more structured. These include remaining invested in the legacy asset whilst waiting for the capital calls, while for those with liability or solvency considerations ‘over-hedging’ may appeal as the capital is thus providing some portfolio utility in that it reduces overall risk relative to liabilities. Still others will invest in some ‘mid-risk’ asset such as a multi-asset portfolio.

What is becoming obvious is that there is no ‘best practice’; research has indicated that this is especially true of defined benefit pension funds. This is not surprising nor a criticism; some are just starting their journey and are focused on the ‘front office’ issues such as identifying and allocating to private assets funds.

We believe that this issue is ripe for discussion and that a clearly set out and pre-planned approach to managing committed capital is appropriate. This is of increasing relevance as private assets now play a greater part in portfolios and the resulting cash flows become more complex as a result. Such an approach will strengthen the governance, reduce operational risks and costs and optimise cash flow management.

Partner

Positioning Pension Schemes for the Net Zero Transition

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

What is the likely path to net zero?

Pension schemes are used to their investment managers constantly updating their views – be it on the likely path of interest rates, company earnings or stock valuations.

That list now needs to include the transition towards a decarbonised economy. We believe the transition has begun but, as with the future path of policy rates, the transition’s path from here is uncertain and evolving.

We think that the faster and more comprehensive it is, the bigger the opportunities could be for companies that are prepared for it, and the bigger the risks for others.

The transition path will likely be determined by an intricate interplay of three key drivers:

• Technology

• Societal preferences

• Climate policy

These three drivers are constantly in motion. Right now, enacted policies and available technology aren’t sufficient1 to achieve the goals of the Paris Agreement, namely “to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels”. See the chart below. Consensus estimates2 see current policy likely to only limit global warming to 2.5-3°C. Yet we believe there is a real possibility that these three drivers will ultimately combine to accelerate the transition from the path implied by current policy.

Possible acceleration ahead, Illustrative net-zero transition scenarios, 2022

We posited in 20203 that this repricing would happen over time, based on the evidence that financial markets haven’t tended to immediately price in slow-moving trends. They have taken decades to fully reflect previous slow-moving structural shifts, even when that shift is well understood, like the post-war baby boom. The net-zero transition is a similarly large but slow-moving structural economic shift.

How can schemes get the right exposure to the transition?

Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, June 2022. Notes: The diagram above serves as a general summary and should not be considered exhaustive nor construed as investment advice. The chart describes how quickly the economy could reach net zero. For illustrative purposes only.

How can we price company cashflows during the transition?

As the economy rewires, both the expected value of, and uncertainty around, future company cashflows will change. Ahead of those changes, markets are repricing risks. As with other views on economic and company fundamentals, investors should consider the extent to which their view of the transition path is currently priced by markets. We don’t think the likely transition is fully priced yet –company valuations still need to adjust further to reflect how exposed companies are to, and how prepared they are for opportunities in, the transition.

Investors can gain exposure to the transition not only through “already-green” assets, but also through assets of carbon-intensive companies with a credible transition plan or that act as enablers of the transition by supplying needed materials, equipment and services for capital investments. Commodities are a prime example: demand for some critical minerals is expected to grow quickly4 as the transition progresses.

How can an investor judge if a carbon-intensive company is prepared for the transition? Currently, that’s still fairly difficult. Investors need forward-looking indicators like robust emissions targets and capex plans, as well as qualitative information on corporate strategy and governance5. But a lack of disclosure and standardised reporting methods means investors do not have the data needed.

Investors and lenders are increasingly seeking this information to inform their decision-making6. The growth of voluntary and mandatory reporting regimes around the world will provide more forward-looking data and metrics in coming years7, and BlackRock has consistently advocated for providing investors with high-quality, globally comparable, climate-related disclosures8. We’re also investing in data and analytics to support client demand for transition insights.

To conclude, our conviction is that portfolios will need to change more quickly in a regime of higher volatility. Pension schemes need their managers to be flexible and nimble to manage the bumps in the road and make the most of opportunities as they arise.

Sustainability:

insights/blackrock-investment-institute/sustainability-in-

blk-supports-consistent-climate-related-disclosures-urges-

Down

Systems

Trustees Liability Protection Insurance

National Pension Officer

UNISON is seeking to recruit a National Pension Officer for our Pensions Unit within the Business, Community and Environment Section, which supports our 1.3 million members who work delivering public services.

Location: UNISON Centre, London NW1

Starting salary: £48,757 per annum incl. London Weighting Allowance

Closing date: 28 October 2022

Hours: 35

Contract type: Full time, permanent

Reference: BNE/72

About this job

The National Pensions Officer’s role is to: provide policy advice and guidance to the union; provide leadership, support and guidance to national committees, regions and branches; research and write policy papers, undertake negotiations with employers and represent the union with outside organisations, including the media. The postholder will provide written and verbal pension advice and negotiating support to all levels of the union, initiating projects and identifying and processing strategic pensions cases on discrimination and members’ pension rights.

Your work will help shape our organisation at many levels, including leadership support across our regions and branches.

You will have knowledge of UK pensions including Defined Contribution and Defined Benefit schemes. You will need to demonstrate the ability to organise work effectively, write well, prioritise proposals and activities and assess their financial implications. You will have excellent communication skills; a sound understanding of research and demonstrate statistical and analytical skills, and case management skills. These skills will give you the credibility to deliver tangible improvements to members throughout the UK.

Travel across the UK with occasional overnight stays will be required.

How to apply

To apply for this opportunity please visit www.unison.org.uk/about/jobs to download and complete the General application form (under “Documents”). See job description and person specification (under “Documents”).

Please note that only the General application form will be accepted.

Please send a copy of the completed application form along with a copy of the recruitment and disability form to Jemma Moss on j.moss@unison.co.uk quoting the ref: BNE/72

The closing date for completed application forms is 12 noon Wednesday 28 October 2022

Interviews and selection test will be held around 17/18 November 2022

Appointments

Pension Engagement Specialist

Trustee Consultants

HB18187 London/ Hybrid £Highly competitive pa

HB18189 London £38,000 - £45,000 pa

Pensions Consultant

Senior Project Administrator

HB18188 Yorkshire £Highly competitive pa

CB18170 Surrey/Hybrid Up to £40,000 pa

Scheme Secretary

Pensions Trustee Executive

HB18121 Remote/ South East To £65,000 pa

HB17796 Herts £Highly Competitive

Rare chance to join this award-winning Independent Trustee firm. We are seeking individuals who have a passion for their pensions career, experience of working with Trustees and attending meetings and are looking for the next step in their career.

This is your chance to be key in implementing agreed pensions engagement strategies to all members of this company’s in house UK pension arrangements. This opportunity will work on a hybrid working model with 4 days at home and 1 in the office.

Pensions Administration Team Leader

Trustee Services Consultant

CB18163 Bucks / Berks Up to £42,000 pa

HB18083 London/Bristol £50,000 - £70,000 pa

Join an award-winning consultancy where you will be responsible for helping the Trustee Services Team delivering outstanding effective trusteeship and consulting services to all its clients, deliver sound advice and present solutions, as well as provide the full remit of secretariat services.

Would you like to work for an award winning company whose accolades include being voted outstanding in terms of personal development and balancing work/life by their own staff? If so, the team are looking to take on a Team Leader to meet client needs following an exciting period of growth.

Senior Pensions Technical Analyst

CB18177 B’Ham/Surrey/Bristol To £40,000 pa

Calculation Technician

CB18215 Surrey/West Yorks./Remote Up to £55,000 pa

An opportunity to work for an award winning and leading independent UK professional services company.

Your clients will be household names and will have an impressive portfolio of DB occupational pension schemes and your background will include a wealth of calculation expertise within pension scheme administration. You will be ready to move away from the hands-on calculation work and want to provide vital support to the more junior members of the team.

As Senior Technical Pensions Analyst you will be prevalent in keeping the pensions admin team up to speed with any changes within the pensions field that will impact scheme administration. Hybrid working to include 2 days in the office.

Brannigan:

This role arrives in anticipation of a number of large Pensions GMP projects where the work will be varied. You will support the pension scheme administration service and deliver scheme projects and deal with new scheme implementations and scheme events.

Superb opportunity for a Pensions Consultant looking to utilise both their Client Relationship Management and Business Development experience. You will lead and inspire clients across a broad portfolio, have full oversight of projects, manage risk and develop proposition.

Senior Pensions Administrator

Pension Administrator HB18190 London/Hybrid £Highly competitive pa

CB17870 Remote Up to £38,000 pa

Rare chance to join this large in house pensions team to administer the DB and DC schemes providing a full cradle to grave service. This role is working on a Hybrid basis of 3:2.

Senior Pensions Administrator

A leading company in their field is looking for a Senior Pensions Administrator to join their talent. You will be provided with accelerated pension career development and be part of a close-knit team. You’ll be given accountability from day one and exposure to both clients and Trustees. DB experience is essential.

CB17919 W. Yorks / Hants To £34,000 pa

Pensions Manager (18 month FTC)

HB18185 West Midlands/Hybrid £42,000 - £56,000 pa

This firm’s client and staff retention rate is exceptionally high and they continue to win new business which has created a new role. This is your opportunity to be an integral member of this very successful team and make a real difference. Previous DB experience is essential as you will be working with the Team Leader in supporting and developing your colleagues.

This is a chance to put your extensive pensions knowledge into play. Managing the outsourced administrators, you will act as an integral part of the team, leading, guiding and assisting a team of five and supporting the Head of Pensions on strategic pensions and benefit projects. This role can also be worked fully remote or office based.

Christine Brannigan: christine@branwellford.co.uk

We are seeking a Senior Manager to lead a portfolio of UK DB & DC Pension clients on their secretariat and governance service. Responsibilities will include all aspects of service delivery and commercial considerations. Within a highly supportive working culture.

A niche player in the pensions industry for providing bespoke services to pensions’ trustee boards is looking for a motivated self-starter to join their growing team. The successful candidate will demonstrate a wealth of trustee services and scheme governance experience.

Pensions Team Leader HB18095 Bedfordshire £Highly competitive pa

Senior Pensions Technical Analyst

CB18177 B‘Ham/Surrey/Bristol £35,000 - £40,000 pa

An in-house pensions role, managing a small team delivering a cradle to grave pensions administration service. You will shape and develop the team, and be responsible for all aspects of the day to day management and administration of the DB/DC pension schemes.

An opportunity to work for an award winning and leading independent UK professional services company. As Senior Technical Pensions Analyst you will be prevalent in keeping the pensions admin team up to speed with any changes within the pensions field that will impact scheme administration. Hybrid working to include 2 days in the office.

Pensions Implementation Manager

CB18220 West Yorks./North West £45,000 - £55,000 pa

Senior Pension Administration CB17711 London £30,000 - £39,000 pa Home to talented, well-recognised industry experts, this company is now looking for pensions administrators (all levels). Working with you to develop your personal and professional skills to help you build a successful career, you will also be exposed to a programme designed around business and personal goals.

Due to the on-going success of this independent pensions business, a new opening has been created. Personable with the ability to build relationships easily, you will be included in new business presentations to discuss scheme implementation with potential new clients and be happy to demonstrate your strengths and passion for this subject matter.

Hayley Brockwell: hayley@branwellford.co.uk

Trustee

Pensions

Admin.

£60k

£45k

£40k

£60k

£60k

to £50k

£70k pa Pensions & Benefits

Quality, Risk & Compliance

Pensions Project Mgr.

Manager

Analysts

Pensions Admin.

Day Rate

Client Relationship

Jnr.

GMP Project Manager

Pensions Admin.

Project

Manager

to £68k pa

£65k+ pa

£65k pa

to c.£45k pa

£39k pa

£30k pa

to £300pd

to £65k pa

to c.£50k pa

£DOE

to £45k pa

£DOE

to £60k

Lay trustee accreditation

We’ve launched a new accreditation to help lay trustees formally recognise their expertise and competency in trusteeship.

At its core is the requirement for lay trustees to complete our Certificate of Pension Trusteeship, equipping them with professional trustee standards.

Accreditation has the backing of both our 45-year legacy in setting high levels of excellence in trusteeship and our unrivalled and inclusive network of over 1000 lay and professional pension scheme trustees.

If you are interested in becoming a lay trustee, discover more here: www.pmitap.org.

We’ll be with you every step of the way.