Trustees' false confidence in long-term planning suggests pension scheme strategies are not fit for purpose

  • 92% of schemes believe they are prepared for the next stage of their strategy
  • Yet, in the last 12 months 88% of schemes were forced to consider a new strategy 
  • Significant numbers of respondents highlighted concerns with their data and available technology

According to our latest research, Ready or Not, nearly all pension schemes (92%) claim to be confident in the next stage of their scheme’s development, however weaknesses in the fundamentals suggests this confidence is misplaced.

Pension trustees face a considerable challenge overseeing the running of a pension scheme, even before Covid-19, and although schemes are confident in the direction overall, there is a lack of clarity in the building blocks. 88% of respondents stated they had been forced to reconsider a new strategy in the past 12 months due to maturity (50%), sponsor covenant (40%) and regulation (40%). Moreover, 81% believe the forthcoming Scheme Funding Code of Practice consultation for defined benefits (DB) funds would also lead to a change in the way they managed the scheme’s strategy. The need for such frequent change, and in some cases for changes that should be foreseen, suggests that many existing strategies are not fit for purpose.

Alongside the degree of uncertainty in their current strategies, trustees also display misplaced confidence in operational challenges. A scheme’s data completeness and the ability to integrate data through technology are two key areas for schemes, yet many appear to be unaware of potential issues. Although almost four fifths (79%) of trustees are confident in their scheme’s data quality, there is considerably less certainty in the completeness of that data, with almost a third (30%) stating more could be done. Many schemes are also unsure if their own technology provides sufficient information to aid strategic decision making, more than a third of schemes believe the level of investment in this area had room for improvement. 

"Schemes need a well-defined strategy, some already do, and some only think they do but in reality the majority need to be honest – they need help."
Paul Houghton Partner, Barnett Waddingham

Paul Houghton, Partner and Head of Actuarial Consulting at Barnett Waddingham, believes that with the right attitude, trustees can create a well-defined long-term strategy by identifying any areas of weakness.

Paul said; “A DB scheme is very much like a piece of machinery with many moving parts, these moving parts need to be maintained by experts in order to keep moving and avoid the possibility of breaking down. There is a worrying amount of, what could be perceived as, false confidence from trustees administering their machine. Although confidence levels appear to be high in the overall strategy there are a number of anomalies when we begin to drill down into the minutiae of the findings. 

“This survey’s intention was not to separate schemes by confidence level, but to highlight the moving parts that need to be tightened. Schemes need a well-defined strategy, some already do, and some only think they do but in reality the majority need to be honest – they need help. As a scheme navigates its way through different elements, such as Covid-19 and the ever changing pensions landscape, it is essential the right options are chosen, and a fit for purpose strategy is created. This does not need to be immutable, but those stakeholders involved need to understand the options chosen.  

“All schemes face numerous challenges.  However, we were surpassed by some of the issues causing trustees to change strategy, like scheme maturity, as they can easily be foreseen in advance using the correct technology and data.  The weaknesses we have highlighted represent key components within every scheme, which are an integral part of running a well-oiled machine. These areas must be identified and fixed before trustees can be confident in the strategy they have created, as a whole not just some components. Reviewing these areas will allow strategies to measure up to expectations and remain fit for purpose so they can confidently navigate through their long-term journey.” 

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Ready or Not

The report outlines many fundamental areas that schemes have identified as causes. Is your scheme up to the challenges?

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