As trustees wrestle with a rapidly changing regulatory environment and complex issues such as sponsor covenants or interest rate debates, their key role – to ensure pension obligations are met – continues to be made more difficult by market and economic volatility. Managing risk has therefore become an important challenge; with many turning to technology to overcome it. Indeed, a recent report launched by pension consultancy, Hymans Robertson, found that 75% of trustees interviewed stressed the importance of having access to real-time information to help them make crucial decisions.
Certainly, the role of the modern day trustee is evolving with risk management now playing a more important role than ever in ensuring the best possible outcome for scheme members. The Pensions Regulator’s Defined Benefit (DB) Code of Practice – released earlier in the year – has added to this pressure, placing higher expectations on trustees to identify and manage key risk areas.
Many are finding such a task a challenge, however. According to the Hymans Robertson report – which surveyed 100 trustees from the UK’s largest DB schemes – the single biggest challenge facing trustees over the next 12 months is to gain “a clear understanding of scheme risks and when to de-risk”. Many simply do not have the time to dedicate to this vital task.
The report therefore concludes that, in order to adapt to the changing regulatory landscape and overcome time pressures, trustees should “embrace technological advancements allowing real-time risk assessment and management”. This enables them to make better decisions and capitalise on favourable market opportunities to de-risk.
Our view is that technology can provide trustees with the up-to-date information they require by helping them explore in real time the potential impact of different strategies on their schemes’ funding level and risk profiles. In this respect, Thomas Mercier, CIO at Invensys Pension Scheme, sums up the benefits a web-based risk analytics platform, such as PFaroe, can bring: “Using PFaroe has made the risks that the scheme is facing far more observable. We use data sourced from PFaroe and its functionalities to stress-test assets and liabilities or project funding levels under various market scenarios. This allows us to move forward in the decision-making process with more confidence.”
By having information at their fingertips at a click of a button, trustees can therefore shift the debate with consultants and sponsors from one about the numbers to one about strategies for dealing with risk. Not only does this save time, it should lead to better decisions, to the benefit of all parties.
Henry Tapper, Director at actuarial consultancy, First Actuarial, comments: “We are also finding Trustees want information at their fingertips and are prepared to learn how to self-serve to get it. Increasingly the trustee is asking to be educated and empowered … in the business of managing pension risk. This is nowhere truer than in negotiations on scheme funding where the ability of trustee, sponsor and advisers to work on the same data and share modelling in real-time is leading to greater collaboration and better decision making.”
As a growing number of schemes move towards the “end-game”, there is no better time for trustees to review their scheme management strategy. In particular, incorporating the use of web-based, real-time tools in order to ascertain a clearer picture of scheme risks, as well as deliver better member outcomes.