Guidance on Integrated Risk Management
Lynda Whitney, John Coulthard, Tim Giles, Aidan O’Mahony
21 January 2016
Prepared by Aon Hewitt
Consulting | Retirement
Background to Integrated Risk Management (IRM)
Funding Code
Covenant Guidance
IRM Guidance
Investment Guidance
To Follow
July 2014
August 2015
December 2015
Guidance on how to
meet statutory funding
requirements.
Set out importance
of IRM.
Guidance on how to
assess employer
covenant.
Practical help on what
IRM may look like.
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What is IRM?
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What’s in the new IRM guidance?
What’s in it?




45 pages
Over 80 key principles/questions for trustees and/or employer to consider
17 examples of what good IRM may look like
A five step process
What’s not?

No one set formula
“
IRM is a risk management
tool that helps trustees
identify and manage the
factors that affect the
prospects of meeting the
scheme objective
”
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What is the benefit for me?
Better decision making
 Focus on most important risks
 Be able to act quicker
 Discuss risk capacities/appetites
Help avoid concentration of risks
 Investments
 Scenarios
Better balance between employer and members
Better security for
members
Lower chance of nasty
surprises for employer
Expect to either lead to lower
long-term costs for employer
or lower risks to
scheme objective
 Collaborative working
 Balance between risk and returns
 Fit in best with employer’s growth plans
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How should you approach this?
Discover
Step 1: Putting an IRM framework in place
 No one set formula for what IRM should look like
 Get advisers to work well with each other
 Opportunity to review governance structures
Step 2: Assess key risk areas, assess risks
together, assess risk capacity/appetite
 Understand risk interdependence and sensitivities
 Help prioritise risks
 Explore express and implied beliefs covering
funding, investment, and covenant
 Discuss objectives, and understanding of risk
Develop


Create common understanding of risks
Look for levers that can control risks while
remaining on path to financial objectives
Step 3: Manage risk and contingency plans
 Action now and in the future
 May not be possible for all risks to be managed
 Do not miss opportunities
Deliver


Decide what you can do now and how
Agree what would lead to change in approach
Step 4: Document decisions
Review
Step 5: Monitor scheme risk

Monitor situation to allow timely response to
changing circumstances
A structured approach makes seemingly unanswerable questions approachable
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Holistic balance sheet
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IRM and Covenant Issues
Employer
Balance Sheet
Scheme Holistic
Balance Sheet
Employer
Debt
Expected
returns
Future
contributions
Scheme
longterm
funding
goal
Risk
Covenant
Reliance
=
Trustee
Risk
Appetite?
Scheme
assets
Employer
other
liabilities
Employer Risk
Capacity and
Risk Appetite
Employer
Assets
Employer Profits
and Cash Flow
Employer
Equity
Profits
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Cash
Flow
Free
Cash
Flow
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Employer
Risk
Capacity
???
Employer
Risk
Appetite
???
Scenarios
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Risk factors
Non-Market
Interest-rates
Market
Inflation
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Prioritising actions
Urgent
Not urgent
Important
Do
– Do it now!
Decide
– Agree what would make
it urgent
Not Important
Delegate
– Who can do it for you?
Discard
– Eliminate it!
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Key Messages from IRM guidance
 Consider risks together, and prioritise them
 Take “risk mitigation” actions if better strategy available or if
objectives not appropriate for risk appetite or risk capacity
 Develop contingency plans for main risk factors
 Work collaboratively
– Trustees and Employer
– Actuarial, Investment and Covenant advisors
 Initial investment in time will be repaid as framework used
– Better decision making
– Focus on most important risks
– Makes decisions easier to explain
e.g to the Pensions Regulator
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Questions
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