Monday 7th December
2009
23rd October
2009
Attain Consulting
The CFA Institute Seminar
The Investment Challenges Facing Pension TrusteesAre We Entering a Whole New Ballgame?
Maurice Whyms
Attain Consulting
23rd October 2009
Agenda – Part 1 Defined Benefit Schemes
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The current position of Defined Benefit schemes
The future operation of schemes and the task facing trustees
The new ballgame and why risk management is key
Help needed
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23rd October 2009
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23rd October 2009
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23rd October 2009
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23rd October 2009
Considerations – will the DB scheme continue?
If No:
– What happens in relation to the deficit?
– What happens in relation to future pension provision?
If Yes:
– How does one get the pension scheme on to a stable and sustainable
footing?
– Having developed a plan, how will the pension scheme operate so it
continues to be stable and sustainable?
23rd October 2009
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Operation of a Pension Scheme
Funding
Benefits
Risk
23rd October 2009
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Defined Benefit as it was...
Funding
Benefits
Risk
23rd October 2009
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Defined Benefit as it is and will be in the future?
Funding
Benefits
Risk
23rd October 2009
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...or maybe even?
Funding
Benefits
Risk
23rd October 2009
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Some of what’s happening in the market
Tier 1
• Increased employer contributions
• Increased member contributions
• Closure of DB schemes to new hires
• Ceasing discretionary benefits
• Changes to future accrual
Tier 2
• Cease future accrual
• Freeze salaries
Tier 3
• Reduce accrued benefits
• Wind-up
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23rd October 2009
What does this mean?
 Risk management was important before
 It will be many more times important in the future because
downside may well have a significant impact on benefits
 ...and the gearing that exists in schemes because pensioners have
priority, increases this even further
 Reliance on employer covenant??
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23rd October 2009
Cont.
• We are seeing signs that risk management is moving to the top
of the agenda:
 The Pensions Board is continuously emphasising the need for greater
risk management
 There are some signs that unions are pushing for the appointment of
professional trustees particularly if benefits have been reduced
 Recent investment guidelines from the IAPF
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23rd October 2009
So what help will trustees require?
•Options for dealing with the main investment risks:
•Help in developing a target or “end-game” position
•A clear outline of all of the options for dealing with risk
•Options for setting up risk management to operate on a dynamic basis
•Developing a clear plan to manage risk:
•How will the scheme operate as it manages towards its end-game objectives?
•What if upside happens?
•What if downside happens?
•Exactly who will do what and when?
•Execution
23rd October 2009
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And so the challenge is....
If it is a new ballgame,
How can the investment industry help trustees to meet
these challenges effectively and efficiently?
23rd October 2009
Attain Consulting
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