Industry welcomes new guidance - but warns that it could push up schemes’ running costs

What happened?

The Pensions Regulator has published guidance to explain how trustees should integrate their investment, employer covenant and funding risks.

Such risks should not be viewed in silos, the regulator emphasised. Instead, trustees and scheme sponsors should understand how different risks interrelate, thereby developing a fuller understanding of how to achieve a sustainable balance. The regulator calls this approach Integrated Risk Management (IRM).


Andrew Warwick-Thompson, executive director, regulatory policy, at the Pensions Regulator (pictured) said: “IRM is about more than merely understanding risks. It concerns managing them.

“Our guidance sets out how trustees and employers should be thinking about risks materialising and how to manage their possible impact. It should be seen as a valuable tool for both employers and trustees to agree a sustainable plan for the delivery of promised member benefits.”

The guidance forms part of the regulator’s efforts to flesh out the defined benefit (DB) funding code. The latest incarnation of the funding code came into effect in July 2014.

What does it mean for trustees?

While supportive of the regulator’s guidance, Malcolm McLean, senior consultant at advisory firm Barnett Waddingham, warned that it could push schemes’ running costs up in the short term.

McLean said: “[The Pensions Regulator] is eager that IRM processes put in place by trustees are effective and that they do not increase costs or time spent on scheme governance. However, we do expect that, at least in the short-term, trustees’ and employers’ costs will rise as they and their advisers develop a proportionate risk-management solution for their schemes.”

Trustees should aim to work in a more co-ordinated way with their different advisers because of this guidance, said Marian Elliott, consultancy Deloitte’s London head of trustee advisory services. Achieving truly integrated risk management can be difficult in practice, warned Elliott.

Elliott said: “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.”

What next?

As a first step, trustees should read and digest the regulator’s new guidance, which can be found here.

It’s also a good idea for trustees to discuss the guidance with their advisers and consider whether there are ways they can bring their existing risk management processes closer together.

The regulator is likely to publish further guidance to flesh out the DB funding code, as well as in other areas where trustees indicate they would welcome further practical help.

The regulator is continuing its ongoing bid to engage with the pensions industry on the skills and competencies that a 21st century trustee requires. It is likely that more on this theme will emerge over time, as the regulator refines its vision of modern trusteeship.