25th Feb 2019

Yes, many trustees have been Brexit planning – haven’t you?

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Despite what has been happening in the House of Commons, we have tried to steer clear of anything Brexit related. However, at the time of writing the Brexit deadline is less than six weeks away and there are some fundamental questions and actions for which responsible pension Trustees must seek urgent answers.

What industry are you in?

It is important to clarify how your member’s organisation will fare based on the different scenarios still playing out. What will a no-deal Brexit mean for them? What will an extended deadline mean for them? That old adage ‘hope for the best, but prepare for the worst’ has never been more apt and it is more important than ever that Trustees and scheme sponsors are working together to ensure transparency.

Automotive, manufacturing, tourism and agriculture are key industries that can expect major change – very possibly negative change – at least in the short-term. What challenges has this posed to the employer covenant? Any adverse changes must have been planned for and it is vital that Trustees have a handle on the cash flow of the business.

Investment

Trustees should have also considered the kind of exposure that their scheme has to the likes of currency risk, inflation, gilt yields and so on? Their investment strategy may not have been appropriate and reviews may have been needed. Schemes that have implemented some degree of LDI (Liability Driven Investment) will have a degree of protection against future volatility, but in our view LDI is still not high enough on the agenda for the Trustees of many smaller schemes.

Cash flow requirements could also be vital depending upon the scheme’s maturity profile and Trustees should have discussed their Brexit strategy with investment consultants and fund managers. This is particularly relevant for defined benefit (DB) schemes where liabilities remain high and it’s important all measures to alleviate risk have been analysed. However, we are all waiting for the publication of The Pension Regulator’s 2019 Annual Funding Statement which could help when it comes to managing risk from the DB perspective. This will obviously be relevant not just for Brexit but also for the wider economic environment.

On the defined contribution side, you should have considered your long-term default investment strategy, and it is vital to ensure that members are kept up to date on any reviews. Good communication remains key for all stakeholders, some of whom may be European.

We would expect that most businesses and Trustees will have contingency planned for a variety of scenarios – and indeed The Pension Regulator’s advice has always been to plan for the worst-case picture – a no-deal.

Therefore, it’s been up to the ‘trusty Trustee’ to rise above the political ineptitude on both sides of the House to protect their members’ interests – regardless of what is happening in the wider environment. We have every confidence in them.