AMNTNEWSLETTER October2017-Issue13

Quarterly

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October2017

AtourFebruaryandJune2017Conferences,wediscussedthevariouschallengesforMNT’sofDB&DCSchemesinarapidlychangingpensionsworld.

Our22ndNovember2017ConferencewillnowtakethiskeyMNTissuetothenextstage.WeaimtointerrogatethemanyrisksthreateningpensionschemestodayandconsiderwhetherMNT’sareadequatelyequippedwiththerighttoolstodothejob?

TheConferencewillbeheldattheofficesofourverygeneroussponsor,DimensionalFundAdvisors,nearGreatPortlandStreetTubeStation.Placeswillbeeagerlysoughtaftersoplease

respondearlyifyouwouldliketoattend.

ThisisanimportantopportunityforMNT’stoexpresstheirviewsandexperiencesonmajortrusteeconcerns;eitherduringthedaywithaline-upofexpertspeakersorattheeverpopular‘break-out’groups.

TPRwilldiscusstheirlatestviewsondrivingupstandardsfor21stCenturyTrusteeship,withtheFCAgivingsomeinsightsoftheassetmanagementworldandfees.

WewillendthedaywithalivelyPaneldebateontheissuesMNT’scurrentlyface.

HellofromTimBrown,yourhostfortheAMNTConference22ndNovember2017

ConsultationsTheAMNTwelcomestheopportunitytorespondtothevariousconsultationpapersissuedbyPublicBodiesandalwaysappreciatesyourhelpinrespondingtothesediscussionpapersonburningissues.

Recently,wehavegivenourviewsonthe‘FCAAssetManagementMarketStudy’andtakenpartinaDWPFocusGroupfortheconsultationintothetreatmentofbridgingpensionsbythePensionsProtectFund(PPF).

WearealsoindiscussionsonthePLSA’sPaperon“GoodGovernanceHowtogetthere”

Ifyouwishtohaveyourvoiceheard,onthisoranyotherpublicconsultationsormajorpensionissues,thenpleaserespond:toconsultations@amnt.org

22ndNovember2017AMNTConference

MemberNominatedTrustees(MNT’s)moveCentreStage!!

TPRdrivesupStandardsfor21stCenturyTrusteeship

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CalendarofFutureEventsOctober2017PLSAAnnualConference–18thto20thOctober2017:alldayeventstobeheldatManchesterCentralConventionComplexLtd,M23GX.November2017HymansRobertson–08/11/17:ahalfdayeventonRiskTransferMarket9.00amto12.30pm.November2017AMNTWinterConference–22/11/17:analldayeventonMNTsMoveCentreStage–tobeheldattheofficesofDimensional,NW13BFNovember2017Baker&McKenzie–30/11/17:ahalfdayevent9amto2pmonBeingaTrustee–essentiallegaltrainingtobeheldattheofficesofBaker&McKenzie,EC4V6JA

IMPORTANT:CanexistingMemberspleasere-registertheirmembershipdetailsonthenewwebsiteatwww.amnt.org

NewSponsorsTheAMNThastakenonthreenewSponsorsinSeptember2017.TheyareAON,P-SolveandCharlesStanley.WithoutoursponsorstheAMNTwouldstruggleinitsaimstoprovidesupportandtrainingforMNTs,tobeavoiceforallMNTsandtoinfluenceHMGovernmentPensionsPolicy.Areally‘big’thankyoutoalloursponsorsandtheincredibleeffortsandresourcestheyprovideforustorunourEvents.CALLTOACTION-TRUSTEESMUSTCONSIDERESGISSUES,SAYSTPRToensurethatAMNTmembersadheretothePensionsRegulator(tTR)expectationstoconsiderenvironmental,socialandgovernanceissues(ESG)intheirinvestmentstrategy,weaskmemberstoraisethisimportantcomplianceissuewiththeirinvestmentadvisors.

Tosupportmembersindoingthis,AMNTandUKSIFrecentlyconvenedameetingattendedbyover90%oftheUKinvestmentconsultantindustry.Sofarthirteenfirms(withmoreexpectedtojoin)havemadeapubliccommitmentthattheywillbringtheTPRESGguidancetotheirclientbase.Moredetailsonthisinitiativecanbefoundhere:http://amnt.org/press-release-amntuksif-initative-investment-consultants/Plus-http://amnt.org/amnt-press-recent-articles-investment-consultants/orpleasecontactLeanneClements,CampaignManager,RedLineVotingatleanne.clements@amnt.orgCallingallAMNTMembers–Wenowhavemorethan750members,representingnearly550pensionschemes.Tobeeffective,weneedyourhelp.IfanyMembersareinterested,thenpleaserespondtoKateBendyat

kate.bendy@amnt.orgortocaroline.davies@amnt.org

Whattrainingdoyouwant?–TheAMNTconstantlystrivestoofferopportunitiesforthedevelopmentoftherequiredknowledgeandunderstandingwearerequiredtohold.Takingonboardyourfeedbackfromsurveys,werecentlyputtogetheranddeliveredahalfdaysessionfocusingonsecurityanddataprotection,hostedbyourpartnerLCP.Thefeedbacksofarisverypositive,andwearehopefulofrepeatingthis.WearealsomindfulthatrecognitionoftrainingisoftenlackingandwewereabletoofferCPDcertificatestoattendees.Futureeventsarebeingplanned,sokeepaneyeonthewebsiteandyourinbox,forfurtherdetails.

Tofindoutaboutallourevents,visitourdedicatedcalendaratwww.amnt.org/events

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IntegratedRiskManagement(IRM)–“I’mstuckonyou”asLionelRichiewouldsay

ByJoanneLivingstoneTechnicalDirectorPunterSouthalljoanne.livingstone@puntersouthall.comortel:02033275000IadmitthatwhenwefirststartedtohearaboutIRMIwasmoreinclinedtothink“I’mstuckwithyou”.ThatgluefeltstickierasthePensionsRegulator(TPR)strengtheneditsearlyplugsforIRMinMay2013byincludingmultiplereferencesinthe2014RevisedCodeofPractice3forfunding.IRMwasfullyadheredfromaregulatory,ifnotlegal,pointofviewbysuccessivecallstomakeitacentralfeature-fromthisyearthereisevenastricturethatallschemesneedtoputinplacecontingencyplansintheeventthatadownsideriskmaterialises.

IfstuckwithIRM,theindustrywasperhapsalsostuckonhowtodoIRMeffectively.Evenmonitoringtheprogressofcovenant,fundingandinvestmentwasapracticalchallenge,thoughmanyatrusteenowenjoystheuseofasummarydashboard.Atleastthesecanshowprogressandriskmeasuresforeachaspectonthesamepage.ButforapproachestoIRMtobecentraltopensionschememanagementtheyneedtogetbacktowhatyouaretryingtoachieve.AtPunterSouthallwebelievethatthiscanbestbeencapsulatedbyplanningyourfundingandinvestmentstrategiestomakethebestpossibleuseofthesponsorcovenant,givingyouthebestchanceofbeingabletoprovidemembers’benefitsinfull.

OurRiskofRuinresearch(availablefromourwebsitewww.puntersouthall.com)showsthattheinteractionsarecomplex,andreceivedwisdomaboutprudenceinfundingandinvestmentmightnotimpactonyourchanceofsuccessfullypayingbenefitsinfullinthewaythatyouexpect.Forexample,asimple0.5%reductioninthediscountrateusedtomeasureyourliabilitiesisprobablynotgoingtomakeitmuchmorelikelythatyouwillbeabletopaybenefitsinfull.

Ibelievethat,inordertoavoidmakingsub-optimaldecisions,allschemesshouldbeusingIRMmethodologythatfocusesonfundamentalobjectives.Inparticularthemethodologyneedstolookattheexpectedchanceofsuccessfullymeetingtheobjectiveandwhatwillhappenifyoudon’t–howlikelyistheretobeanirreparableshortfallorsponsorfailureandhowbadlymightthemembersbeimpactedifthisweretohappen.WhenIRMisusedinthisway,itbecomesatoolthatcanbedeployedwheneveradecisionisneeded,whetheraboutalternativeinvestmentstrategiesfornowandthefuture,mitigationsfordamagetocovenant,whethertohaveasecondaryfundingtargetorevenwhichRecoveryPlantochoose.AndhavingatooltohelpindecisionsisconsiderablymorevaluablethanhavingIRMjusttotickaboxforTPR.Itconvertsthisscepticintoafan,inprinciple.

ThefinalstageingettingmedancingontheceilinghasbeenforPunterSouthalltodevelopwaystogivetrusteesandsponsorsindividuallycraftedsinglemeasureswhichshow,overtheirchosentimeperiod,whatthechanceofsuccessisandpotentialdownsidepainbasedontheindividualcircumstancesofthesponsorandthecontributionandinvestmentstrategiestheymightbeinterestedin.WedothisusingourSmarterAnalyticsSuitewhichcombinesAsset/LiabilityModellingavailablethroughoureverydayvaluationplatformwithmodellingaroundthecovenant.Thisisfundamentallychangingthewaywecanconsultwithourclients,makingbothone-offexercisessuchastheactuarialvaluationandongoingmonitoringconcentratelessonthetechnicalaspectsandmoreontheoutcomes.

Forexampleoneofourclientswithaborderline‘tendingtostrong’/’tendingtoweak’covenanthadagreedatthevaluationtopayfixedextracontributionstolockdownriskby2030.TheTrusteeswantedtoknowiftheywerenowdoingallpossibletomaximisethechanceofsuccess.Theyusedouranalyticstofindtheyhada62%chanceofgettingtowheretheywantedbythatdatebut

notedthatthismeantthattherewasa38%chanceofnotbeingabletoachievethisduetoeithercovenantfailureorlackofinvestmentsuccess

Theywantedtounderstandmoreaboutthechancestheywouldnotmaketheirtargetby2030.Weconcentratedoncaseswheretheymightnotmaketheirtargetbutstillhaveanaffordabledeficitafter2030ontheirpreferredminimumriskbasis.Ouranalysisshowedthiswouldbeonlybeforabouthalfofthe38%ofscenarioswherethetargethadnotbeenreachedandcouldbeaslowasonethirdoftheoutcomesifaffordabilitywasalsostressed.Havingconsideredthepotentialimpactonmembers’benefitsoftheseadverseoutcomestheTrusteesdecidedtorequestthattheEmployerconsiderextendingtheparentcompanyguaranteeandalsodecidedtoreviewtheirplannedglidepath.IthinkthisexampleillustratesthatthenextphaseofIRMisactuallyprettyexcitinganddefinitelysomethingtosingabout.

PensionReform–EASY!!

AMNTNEWSLETTER|Issue13 OCTOBER2017-ISSUE13