Trustees to the fore

Marcin Stepans, Events Content Manager, shares some insights from the PLSA’s first Trustee Forum event.

At the Pensions and Lifetime Savings Association’s Trustee Forum in March, chairs of trustee boards and senior trustee directors from some of the UK’s biggest pension funds, regulators from The Pensions Regulator and Financial Conduct Authority, and representatives of the PLSA gathered to share insight on the industry’s most pressing issues.

Discussions centred on good governance, systemic risks, and the changing regulatory landscape.

Burdensome Disclosure

Given the many regulatory changes due to take effect this year in the pensions sphere, it will be important that what comes out is practical and results in good outcomes for members. But Forum attendees voiced concerns about the unintended consequences of increased regulation and disclosure, with some wondering whether trustee boards are turning into governance and compliance bodies.

Conversations honed in on what was seen to be burdensome, excessive and costly disclosure – particularly on smaller schemes – such as the Taskforce on Climate-related Financial Disclosures’ (TCFD) reporting requirements.

A particular worry is that TCFD reporting will require yet more documentation and information, but will fail to deliver better value for members. Many flagged that the default answer to all pension issues seems to be more disclosure, and there were calls to ensure an appropriate balance.

The industry is still waiting for the DB Funding Code to be finalised. However, attendees raised concerns that much of The Pensions Regulator’s draft code, which is due to come into force in April 2024, assumes most schemes are closed to future accrual or close to their endgame. The code does not work so well for open schemes. For more information about the DB Funding Code, see page 17.

The PLSA is pleased that The Pensions Regulator has extended the implementation date to April 2024 from October 2023, as this will give schemes more time to prepare. We have also emphasised the need for more focus on open schemes.

Ldi Crisis Has Wideranging Impact

Speakers at the Forum talked about the wide mix of outcomes for schemes over the months since the liability-driven investment (LDI) crisis in October 2022. Some schemes say they have seen a positive impact, while others have moved backwards.

Some are now in a better funding position than ever and closer to their endgame but will have to wait to go to buyout due to the recent market volatility and the rising proportion of illiquid investments in their portfolios as a result of collateral calls. There were also differences between how investment consultants and asset managers coped during the LDI crisis, and there is now an increasing need for daily-dealt funds.

Some of the positive things that trustees have achieved in the last 12 months include improved governance, a clearer direction of travel towards their endgame, and using the LDI crisis to increase their hedge ratio.

Systemic Risks

When asked what keeps them awake at night, trustees cited concerns around the efficiency of some service providers, transparency, and staff resourcing issues.

The recent emergence of systemic risks in the banking system, highlighted by the problems at Credit Suisse and Silicon Valley Bank, is also causing trustees to worry, with some warning that visibility beyond the short term is difficult right now.

At the Forum, discussions centred on how trustees don’t have the time to take a step back and think about big systemic risks and potential contagion as they already have so much to do on a day-today basis.

One trustee highlighted the importance of thinking ahead as early as possible and commented that “we’ve become good at identifying key risks but not at accurately assessing risks when they’re bad.”

Another cautioned against looking to the past for lessons on what to do in the future, and that it’s better to prepare for generic events happening rather than specific risk events.

IS REGULATION HEADING IN THE RIGHT DIRECTION?

During the regulatory session, discussions turned to the increasing burden on both DC and DB pension schemes, with some suggestions that regulators are viewing them as systemically important entities.

One area of discussion was what does ‘value for money’ mean in DC schemes – that cost is only one part of value and quality of service is a critical point. Trustees pointed out that value for money is different in DC and DB schemes, and that it’s important not to treat both the same.

Attendees pointed out that there’s a difference in competition discussions at the regulatory level, and that there’s tension between regulating commercial pension providers and trust-based schemes.