Julia Dickson, partner in PwC’s pensions credit advisory team, said:
“The new guidance is helpful and whilst detailed it's not overly prescriptive. This is sensible given there is no one size fits all approach to monitoring scheme and corporate risk. There is a clear and sensible requirement for trustees, sponsors and advisors to work together to get under the skin of their respective exposure, appetite and capacity to tolerate risk. And then agree how to respond if these risks materialise.
"The Pensions Regulator has set out five key areas that trustees and employers should focus on which usefully clarifies what is expected. Detailed IRM exercises allow the trustees and sponsors to have a framework to monitor changes in asset, funding and covenant positions more frequently than every three years. And then react quickly to any real changes, whilst avoiding knee-jerk reactions to the inevitable shorter-term fluctuations."
Steven Dicker, partner in PwC's pensions consulting team, added:
"It is good to see regular reference to taking a proportionate approach to agreeing what risks to monitor and what response to take.
There is a potential trap in trying to identify every possible risk and to plan for it - since there is always potential for an unanticipated 'black swan' event to occur. Investment risk shouldn't be removed today solely because of an extremely unlikely hypothetical event. It is more helpful to agree the protocol for responding to such an event.
"We are continuing to see a high level of flexible funding structures to strengthen the covenant - such as cash in escrow, guarantees or asset-backed contributions. We are pleased to see the Regulator recognising the clear benefit of these as, in the right circumstances, they can help strike a balance between differing views around longer term risk levels."
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