“Effective pension scheme management depends on understanding the key risks facing the scheme, but also how they interrelate. That is easy to say but can be difficult for trustees to achieve, unless they are provided with advice from covenant, investment and actuarial advisors in a co-ordinated way. Advisors will have to up their game, forming multi-disciplinary teams to provide the risk management metrics that trustees will need to inform their decision making process.
“Trustees must understand how their advisory team will work together to provide the necessary elements required to set up and manage the IRM framework. Failure to do so could result in schemes taking inappropriate or unnecessary levels of risk; at best there is a real risk of inconsistencies, duplication of work or a significant increase in running costs.
“Turning a risk management framework into better outcomes depends not only on analysis but, perhaps more importantly, on action. Once the scheme’s objectives and key risks are understood, it is crucial that the employer and trustees put clear funding, contingency and risk mitigation plans in place. It will not always be possible to remove or manage all the risks facing the scheme. The point is to reduce the likelihood of being caught unaware and to have a process in place which enables trustees to easily monitor, understand and react to changes in the funding position and strength of the employer covenant over time.”
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