Prepare for and respond to the unexpected; get back on track quickly
What do you do if the road is blocked and you have to take a diversion – or worse, your tyre explodes on the motorway? Unforeseen events can derail any journey. Pension schemes need to be prepared for a wide variety of events, ranging from corporate transactions that impact their sponsor’s risk capacity or affordability profile to market shocks that affect a scheme’s funding level. Effective governance, truly diverse investments, and good contingency plans will help you remain focused on protecting members’ benefits, even when the unexpected happens.
Being able to respond to a new situation in an agile way requires good governance.
A single document setting out how to respond to unforeseen events, whether they originate from your scheme or sponsor, can reduce valuable decision-making and negotiation time.
Consult your contingency plan & defence manual to gauge next steps.
Following a shock, it is key to establish whether the capacity of your sponsor to support your scheme’s risks and to make contributions has changed.
Following an asset or liability shock the new funding level needs to be established.
Taken together, what do changes to your covenant and scheme mean for your journey plan?
Further negotiations between the trustees and the sponsor may be required following a shock event.
Once agreed, any revisions to the covenant support structure, contributions profile, or investment strategy should be implemented swiftly.