Brexit contingency planning – a guide for trustees

With the clock ticking until the UK departs from the EU, we are supporting a growing number of our clients with differing degrees of Brexit contingency planning.

As with all aspects of risk management, what sponsors and schemes will do is necessarily very ‘scheme specific’ and after more than two years of continued news flow on the topic, anyone could be forgiven for having some fatigue on the matter. However, whatever your view of Brexit, the volatility associated with potential outcomes means that it is certainly a ‘risk event’.

What can trustees usefully do regarding Brexit risk given the uncertainty of outcome?

1. Proportionate contingency planning
Brexit is an example of a more extreme IRM event – a risk scenario which will impact covenant and investment risks foremost, with a consequential effect on funding risk. In broad terms, all sponsors are being required to underwrite the Brexit risk as it relates to them and their pension scheme.

2. Tactical portfolio repositioning working on a integrated basis with your investment consultant or fiduciary manager
Examination of how your sponsor would be expected to respond to, for example, currency or inflation movements in tandem with an appreciation of the same on the funding position of the scheme is leading some of our clients to use tactical repositioning of aspects of their investment portfolio to deal with problematic expected correlations.

3. Doing nothing is an active decision, although it may not feel like that
Doing nothing may be the right decision for some schemes and sponsors to conclude that, with all the uncertainty and with the specific risks faced by their scheme and sponsor, nothing useful can be done that justifies work at this juncture. In such cases, we advise clients to debate and document their rationale for that decision.

4. Whether to sign-off a triennial valuation that bridges 31 March 2019 ahead or after
that date?
Some schemes, particularly those with 2018 valuation dates, are actively considering holding fire on signing-off a valuation until beyond the Brexit deadline. Clearly we may find that date is extended by the EU / UK government. There is a case for schemes being thoughtful with sponsors about retaining flexibility – which TPR might also understand notwithstanding the clearer, quicker, tougher mandate which has recently seen less leeway for submitting valuations beyond the deadline.

A guide for trustees

We have produced a guide for trustees which addresses contingency planning for Brexit.

If you would like to discuss any of the above or other Brexit-related matters, then please contact us.

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