United Kingdom

Why fiduciary management?

Sion Cole
Fiduciary management is one solution to the challenges facing pension scheme trustees and sponsors. The key drivers behind the rapid growth of this solution are; scheme closures, limited trustee time, wider diversification and flight planning - Sion Cole, Aon Hewitt

A combination of challenges means the pressures facing UK pension schemes have never been so great. With the focus very much on reducing risk whilst improving the scheme's funding position, the challenge is not only in choosing the right investment strategy for the scheme, but being able to evolve your strategy and take advantage of opportunities as they arise.

Scheme closures and increasing deficits

Over 80% of defined benefit (DB) pension schemes are now closed. This means a limited time for those schemes to recover deficits and reach fully funded status.

This has led to huge financial pressures on sponsoring employers and has put the pension scheme at the top of their agenda. Trustees therefore need to be increasingly confident that investment performance and the sponsor covenant are strong enough to meet the obligations of the pension scheme not just now but in the future as well.

Market volatility and increasing investment complexity

Market volatility over recent years combined with increasing governance requirements and complexity of the investment options available has led to significant pressures on trustees' time. This has meant that trustees may have struggled to fully embrace the ever expanding range of solutions and investment instruments intended to overcome the challenges faced.

Time pressure on all stakeholders

For many schemes, consideration of investment matters may only be undertaken as part of the trustees' quarterly meeting cycle or in some cases even less frequently. This can lead to delays in the decision making process and hence missed opportunities to take advantage of favourable market conditions. In the current environment, even a one or two week delay can have a huge impact on funding levels, let alone over a three month delay.

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Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.

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