AMNTNEWSLETTER October2017-Issue13
Quarterly
Newsletter
October2017
AtourFebruaryandJune2017Conferences,wediscussedthevariouschallengesforMNT’sofDB&DCSchemesinarapidlychangingpensionsworld.
Our22ndNovember2017ConferencewillnowtakethiskeyMNTissuetothenextstage.WeaimtointerrogatethemanyrisksthreateningpensionschemestodayandconsiderwhetherMNT’sareadequatelyequippedwiththerighttoolstodothejob?
TheConferencewillbeheldattheofficesofourverygeneroussponsor,DimensionalFundAdvisors,nearGreatPortlandStreetTubeStation.Placeswillbeeagerlysoughtaftersoplease
respondearlyifyouwouldliketoattend.
ThisisanimportantopportunityforMNT’stoexpresstheirviewsandexperiencesonmajortrusteeconcerns;eitherduringthedaywithaline-upofexpertspeakersorattheeverpopular‘break-out’groups.
TPRwilldiscusstheirlatestviewsondrivingupstandardsfor21stCenturyTrusteeship,withtheFCAgivingsomeinsightsoftheassetmanagementworldandfees.
WewillendthedaywithalivelyPaneldebateontheissuesMNT’scurrentlyface.
HellofromTimBrown,yourhostfortheAMNTConference22ndNovember2017
ConsultationsTheAMNTwelcomestheopportunitytorespondtothevariousconsultationpapersissuedbyPublicBodiesandalwaysappreciatesyourhelpinrespondingtothesediscussionpapersonburningissues.
Recently,wehavegivenourviewsonthe‘FCAAssetManagementMarketStudy’andtakenpartinaDWPFocusGroupfortheconsultationintothetreatmentofbridgingpensionsbythePensionsProtectFund(PPF).
WearealsoindiscussionsonthePLSA’sPaperon“GoodGovernanceHowtogetthere”
Ifyouwishtohaveyourvoiceheard,onthisoranyotherpublicconsultationsormajorpensionissues,thenpleaserespond:[email protected]
22ndNovember2017AMNTConference
MemberNominatedTrustees(MNT’s)moveCentreStage!!
TPRdrivesupStandardsfor21stCenturyTrusteeship
AMNTNEWSLETTER|Issue13 OCTOBER2017-ISSUE13
CalendarofFutureEventsOctober2017PLSAAnnualConference–18thto20thOctober2017:alldayeventstobeheldatManchesterCentralConventionComplexLtd,M23GX.November2017HymansRobertson–08/11/17:ahalfdayeventonRiskTransferMarket9.00amto12.30pm.November2017AMNTWinterConference–22/11/17:analldayeventonMNTsMoveCentreStage–tobeheldattheofficesofDimensional,NW13BFNovember2017Baker&McKenzie–30/11/17:ahalfdayevent9amto2pmonBeingaTrustee–essentiallegaltrainingtobeheldattheofficesofBaker&McKenzie,EC4V6JA
IMPORTANT:CanexistingMemberspleasere-registertheirmembershipdetailsonthenewwebsiteatwww.amnt.org
NewSponsorsTheAMNThastakenonthreenewSponsorsinSeptember2017.TheyareAON,P-SolveandCharlesStanley.WithoutoursponsorstheAMNTwouldstruggleinitsaimstoprovidesupportandtrainingforMNTs,tobeavoiceforallMNTsandtoinfluenceHMGovernmentPensionsPolicy.Areally‘big’thankyoutoalloursponsorsandtheincredibleeffortsandresourcestheyprovideforustorunourEvents.CALLTOACTION-TRUSTEESMUSTCONSIDERESGISSUES,SAYSTPRToensurethatAMNTmembersadheretothePensionsRegulator(tTR)expectationstoconsiderenvironmental,socialandgovernanceissues(ESG)intheirinvestmentstrategy,weaskmemberstoraisethisimportantcomplianceissuewiththeirinvestmentadvisors.
Tosupportmembersindoingthis,AMNTandUKSIFrecentlyconvenedameetingattendedbyover90%oftheUKinvestmentconsultantindustry.Sofarthirteenfirms(withmoreexpectedtojoin)havemadeapubliccommitmentthattheywillbringtheTPRESGguidancetotheirclientbase.Moredetailsonthisinitiativecanbefoundhere:http://amnt.org/press-release-amntuksif-initative-investment-consultants/Plus-http://amnt.org/amnt-press-recent-articles-investment-consultants/orpleasecontactLeanneClements,CampaignManager,[email protected]–Wenowhavemorethan750members,representingnearly550pensionschemes.Tobeeffective,weneedyourhelp.IfanyMembersareinterested,thenpleaserespondtoKateBendyat
[email protected]@amnt.org
Whattrainingdoyouwant?–TheAMNTconstantlystrivestoofferopportunitiesforthedevelopmentoftherequiredknowledgeandunderstandingwearerequiredtohold.Takingonboardyourfeedbackfromsurveys,werecentlyputtogetheranddeliveredahalfdaysessionfocusingonsecurityanddataprotection,hostedbyourpartnerLCP.Thefeedbacksofarisverypositive,andwearehopefulofrepeatingthis.WearealsomindfulthatrecognitionoftrainingisoftenlackingandwewereabletoofferCPDcertificatestoattendees.Futureeventsarebeingplanned,sokeepaneyeonthewebsiteandyourinbox,forfurtherdetails.
Tofindoutaboutallourevents,visitourdedicatedcalendaratwww.amnt.org/events
AMNTNEWSLETTER|Issue13 OCTOBER2017-ISSUE13
IntegratedRiskManagement(IRM)–“I’mstuckonyou”asLionelRichiewouldsay
ByJoanneLivingstoneTechnicalDirectorPunterSouthalljoanne.livingstone@puntersouthall.comortel:02033275000IadmitthatwhenwefirststartedtohearaboutIRMIwasmoreinclinedtothink“I’mstuckwithyou”.ThatgluefeltstickierasthePensionsRegulator(TPR)strengtheneditsearlyplugsforIRMinMay2013byincludingmultiplereferencesinthe2014RevisedCodeofPractice3forfunding.IRMwasfullyadheredfromaregulatory,ifnotlegal,pointofviewbysuccessivecallstomakeitacentralfeature-fromthisyearthereisevenastricturethatallschemesneedtoputinplacecontingencyplansintheeventthatadownsideriskmaterialises.
IfstuckwithIRM,theindustrywasperhapsalsostuckonhowtodoIRMeffectively.Evenmonitoringtheprogressofcovenant,fundingandinvestmentwasapracticalchallenge,thoughmanyatrusteenowenjoystheuseofasummarydashboard.Atleastthesecanshowprogressandriskmeasuresforeachaspectonthesamepage.ButforapproachestoIRMtobecentraltopensionschememanagementtheyneedtogetbacktowhatyouaretryingtoachieve.AtPunterSouthallwebelievethatthiscanbestbeencapsulatedbyplanningyourfundingandinvestmentstrategiestomakethebestpossibleuseofthesponsorcovenant,givingyouthebestchanceofbeingabletoprovidemembers’benefitsinfull.
OurRiskofRuinresearch(availablefromourwebsitewww.puntersouthall.com)showsthattheinteractionsarecomplex,andreceivedwisdomaboutprudenceinfundingandinvestmentmightnotimpactonyourchanceofsuccessfullypayingbenefitsinfullinthewaythatyouexpect.Forexample,asimple0.5%reductioninthediscountrateusedtomeasureyourliabilitiesisprobablynotgoingtomakeitmuchmorelikelythatyouwillbeabletopaybenefitsinfull.
Ibelievethat,inordertoavoidmakingsub-optimaldecisions,allschemesshouldbeusingIRMmethodologythatfocusesonfundamentalobjectives.Inparticularthemethodologyneedstolookattheexpectedchanceofsuccessfullymeetingtheobjectiveandwhatwillhappenifyoudon’t–howlikelyistheretobeanirreparableshortfallorsponsorfailureandhowbadlymightthemembersbeimpactedifthisweretohappen.WhenIRMisusedinthisway,itbecomesatoolthatcanbedeployedwheneveradecisionisneeded,whetheraboutalternativeinvestmentstrategiesfornowandthefuture,mitigationsfordamagetocovenant,whethertohaveasecondaryfundingtargetorevenwhichRecoveryPlantochoose.AndhavingatooltohelpindecisionsisconsiderablymorevaluablethanhavingIRMjusttotickaboxforTPR.Itconvertsthisscepticintoafan,inprinciple.
ThefinalstageingettingmedancingontheceilinghasbeenforPunterSouthalltodevelopwaystogivetrusteesandsponsorsindividuallycraftedsinglemeasureswhichshow,overtheirchosentimeperiod,whatthechanceofsuccessisandpotentialdownsidepainbasedontheindividualcircumstancesofthesponsorandthecontributionandinvestmentstrategiestheymightbeinterestedin.WedothisusingourSmarterAnalyticsSuitewhichcombinesAsset/LiabilityModellingavailablethroughoureverydayvaluationplatformwithmodellingaroundthecovenant.Thisisfundamentallychangingthewaywecanconsultwithourclients,makingbothone-offexercisessuchastheactuarialvaluationandongoingmonitoringconcentratelessonthetechnicalaspectsandmoreontheoutcomes.
Forexampleoneofourclientswithaborderline‘tendingtostrong’/’tendingtoweak’covenanthadagreedatthevaluationtopayfixedextracontributionstolockdownriskby2030.TheTrusteeswantedtoknowiftheywerenowdoingallpossibletomaximisethechanceofsuccess.Theyusedouranalyticstofindtheyhada62%chanceofgettingtowheretheywantedbythatdatebut
notedthatthismeantthattherewasa38%chanceofnotbeingabletoachievethisduetoeithercovenantfailureorlackofinvestmentsuccess
Theywantedtounderstandmoreaboutthechancestheywouldnotmaketheirtargetby2030.Weconcentratedoncaseswheretheymightnotmaketheirtargetbutstillhaveanaffordabledeficitafter2030ontheirpreferredminimumriskbasis.Ouranalysisshowedthiswouldbeonlybeforabouthalfofthe38%ofscenarioswherethetargethadnotbeenreachedandcouldbeaslowasonethirdoftheoutcomesifaffordabilitywasalsostressed.Havingconsideredthepotentialimpactonmembers’benefitsoftheseadverseoutcomestheTrusteesdecidedtorequestthattheEmployerconsiderextendingtheparentcompanyguaranteeandalsodecidedtoreviewtheirplannedglidepath.IthinkthisexampleillustratesthatthenextphaseofIRMisactuallyprettyexcitinganddefinitelysomethingtosingabout.
PensionReform–EASY!!
AMNTNEWSLETTER|Issue13 OCTOBER2017-ISSUE13