Pensions - Articles - tPR guidance on IRM - Punter Southall reaction

 The concept of an integrated risk management framework is one that we fully share, however we believe that the highly stylised examples in the guidance have not been able to focus sufficiently on the importance of time as an element for consideration in any risk framework. It needs to be acknowledged that many schemes will inevitably have to take risk in order to meet their ultimate objective of paying all the benefits as they fall due, and that decisions about when to take that risk should be part of the integrated risk management discussions. Giving an example where one investment strategy is preferred simply because it produces (under value at risk modelling) a lower figure for the minimum extra deficit which might emerge over the test period in at least 5% of cases ignores the fact that this strategy could equally well produce some complete doomsday scenarios under which the scheme actually runs out of cash. It is important that the guidance is not taken as a further signal that immediate risk reduction is the order of the day without due consideration as to whether this might actually increase the risk that schemes won’t reach their ultimate objectives.”