When asked in polling during Aon’s 2021 Virtual Pensions Conference series what the top concerns had been for their schemes in 2020, respondents showed that they had succeeded in keeping their schemes on an even keel despite the general uncertainty and the initially bumpy markets. Perhaps surprisingly, just 2% of respondents said that their greatest concern was ‘key man’ risk while only 3% said it was their advisers or administrators.
Matthew Arends, partner and head of UK Retirement Policy for Aon, said: “These results are a clear indication that pension schemes have robust governance practices in place. Gone are the days when knowledge or authority was locked up in a single individual, whether within the trustee board or in the company's pensions team. These results also demonstrate the pensions industry’s confidence in being able to continue to support schemes in the most testing of circumstances."
For many organisations, maintaining ‘business as usual’ was the key challenge of 2020, yet only 19% of respondents said that this was the greatest concern with their pension schemes.
Gary Cowler, partner and co-lead, UK Pensions Administration at Aon, said: “With traditional face-to-face meetings impossible and the need for flexibility becoming suddenly essential, there’s been much commentary on how UK pension schemes had to make swift changes to their operating methods in 2020. But given these circumstances, it’s pleasing that investments in technology and business resilience delivered for the majority of schemes. They were there for members when needed and succeeded in their most vital task – ensuring that pensioners received their pensions on time every month.”
The polling revealed that the areas of most significant concern were largely those that were beyond the direct control of trustees and pension managers.
Matthew Arends continued: “Powerlessness is always regarded as the toughest situation and it was the areas over which they had no or limited control that resonated most with our respondents. Over a quarter of schemes said their sponsor’s finances gave the greatest concern during 2020 – and for many that concern will not have abated.
“Our experience is that there is a large and continuing divergence of impact on sponsor covenants as a result of the COVID-19 pandemic. When the government's support for distressed businesses ends, this divergence could grow even wider and the effect for some may be insolvency and, ultimately, reduced benefits to members. It's clear that this potential outcome weighs heavily on the minds of respondents.”
Emily McGuire, partner at Aon, said: “While it’s an area they can at least control, 37% of respondents flagged concerns about their investment strategy – essentially being uncertain whether it was right for the circumstances. In the frequently fast-moving markets we saw last year, that is probably not surprising.
“Generally, it was the schemes that had control of their liability risk and a well-diversified growth portfolio that were better protected against the market falls - and were also able to take advantage of the market opportunities.”
Matthew Arends concluded: "Our research shows that over the course of 2020, almost three-quarters of defined benefit pension schemes ended the year with a funding level the same as or higher than at the start of the year - despite many having had a bumpy ride along the way. However, that leaves just over a quarter who saw their funding level worsen over 2020. No doubt this remains a concern to trustees and corporate pension teams during 2021."
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