Current circumstances pose a test to scheme governance
LONDON (18 March 2020) – Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has issued a ten-question guide for trust-based defined contribution (DC) pension schemes which aims to help them check their ability to remain resilient and maintain control during the current circumstances.
Madalena Cain, principal consultant at Aon, said:
“Ensuring good governance of pension schemes is a challenging task at the best of times – and we’re not in those at the moment. With this is in mind, Aon has compiled ten questions which can help the trustees of DC schemes to check the resilience of their schemes. The questions address core areas aligned to governance, investment, administration and member communication - and ask how strong your planning may be.
“If you have plans, you need to ask yourself, are they flexible, are they tested - and can you make decisions as easily as in more normal times? With this guide we are essentially aiming to give DC trustees some clarity on the actions they may need to take.”
- Administration: What are the business continuity plans of your administrator and how will these ensure the accurate and timely processing of core financial transactions as well as deal with an increased volume of member queries?
- Communication: Do you have a policy on communicating with members when there are significant market shocks? Can you contact your members easily if needed?
- Investment Strategy: How has the current market environment impacted on current holdings and projected outcomes of members? Can you get information on your exposure to certain industries, companies, countries? Does the current situation lead to additional reporting opportunities?
- Investment Platform: What are the contingency plans of your investment platform? Are they in regular contact with investment managers to understand their positioning, impact on trading costs, any strain to accepting future investments or completing transitions?
- Trading Costs and Liquidity: Do you have a disinvestment strategy if you have higher than usual demand e.g. for multi-fund blends? Do you have clear instructions to direct your investment platform to liquidate some assets while holding others?
- Approvals: Have you reviewed your approved signature list in the last 12 months and ensured there is no 'key person' risk where only one person can sign?
- Decisions: Do you have a plan in place to prioritise scheme tasks and the ability and operational flexibility to conduct trustee meetings online/by conference or video call?
- Substitutes: Do you have a plan in place to prioritise scheme tasks and the ability and operational flexibility to conduct trustee meetings online/by conference or video call?
- Insurance: What are your insurance provisions and exclusions?
- Plan: Do you have an incident response plan that pulls together these strands - and more - into a single place?
John Foster, principal consultant at Aon, said:
“Robust risk management procedures provide a clear framework for trustees of DC schemes to hone their contingency plans and to ensure a consistent and coordinated response to shocks of any sort. The current Covid-19 issues are complex and they impact many if not all aspects of a DC scheme's operations.
“Whatever the issue, a well thought-through plan gives DC schemes the ability to handle issues more effectively and enables them to remain resilient –whether these issues have affected systems, people, location, sponsors or suppliers.”
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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