“The Pensions Regulator (TPR) annual funding statement issued yesterday, coming fast after the publication of the White Paper, is continued evidence of its clearer and tougher stance. It goes beyond the realms of simply funding matters by dwelling in particular on the need for good Integrated Risk Management (IRM) for schemes of all kinds. It specifies, in more detail than hitherto, the potential requirements for actions to take when dealing with matters such as the maturing of the scheme, covenant shocks, long term and short term risks to the plan (especially where these might also impact on the employer as well). Trustees are also encouraged to consider the member perspective both in terms of the residual risk they bear and the risk from them not exiting the pension scheme as planned.
“Despite the messages being set out as part of an annual funding statement, it is clear that it is not appropriate to treat the valuation as a stand-alone event to be revisited only every three years. Trustees and sponsors must look over the long term to work out the right approach for their schemes; the valuation forms part of the IRM framework that should be adopted.
“We believe that most schemes do have some sort of IRM framework in place but this can and should be improved in a number of ways:
• A review to establish gaps in the framework and ensure that a proportionate approach is taken to the various risks
• Ensuring all parties provide the agreed information under the framework
• Ensuring that the long term objective has been considered and the rationale for the measure and timeframe has been documented
• Ensuring that the likely evolution of the scheme towards this objective has been evaluated and that the up and downside risks have been explored and there is documented evidence that the risk capacity is acceptable
• Ensuring that monitoring frameworks are not just tick-box, by advising on possible mitigation strategies and contingent actions.
“TPR has stated its aim to be quicker, clearer and tougher – trustees and sponsors would be well advised to have a smarter IRM framework to stay ahead of TPR as the pensions landscape continues to change markedly.”
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