2020 has been a year of significant change for UK pension schemes’ investment strategies – even before we take the effects of the Covid-19 pandemic into account. Governance has come under ever greater scrutiny from The Pensions Regulator, responsible investment is rising rapidly up the trustee agenda, and pension schemes are demanding ever greater cost transparency from their providers.
Over the summer, we set out to listen and to understand how DB and DC investment decision-makers were responding to the current challenges in several areas:
- Investment governance
- Responsible investment
- Endgame planning and de-risking
- Cost and transparency
- The Pension Regulator’s defined benefit funding code of practice
Inevitably, the pandemic was a common thread running through all the discussions. And, while it’s still too early to understand its longer-term effect on schemes and markets, the crisis has already started to reshape investment strategy decisions and the way these are made.
Our findings provide real-world insights into key trends, common approaches — and differences — to paint a picture of current thinking in pensions investment.
Covid, climate and compliance – are you ready for the investment challenges ahead?
Aon’s Emily McGuire is joined by Maggie Williams, pensions commentator, to discuss the impact for investors of Covid-19, increasing regulation and the climate crisis.
Drawing on interviews with pension scheme decision-makers, this podcast explores trustees’ top priorities for 2021 – and strategies they can adopt to address them.
Emily McGuire
Investment Partner
in-depth interviews
20 in-depth interviews
Professional, independent and member-nominated trustees
Third party evaluators
Pensions managers
Schemes sizes ranging from
£10m - £10bn+
Representing DB and DC schemes
Investment governance
Our experts
Tony Baily
Investment Partner
Prior to COVID-19, DB and DC schemes were facing an increasing governance burden, brought on by new regulations and compliance requirements. The pandemic added to this, testing governance processes to their limits. Trustee boards have had to rapidly re-invent many aspects of how they run their schemes and make investment decisions.
“COVID-19 has caused many difficulties for pension schemes and their members. But it may have initiated the biggest shake-up in scheme governance for decades.”
“COVID-19 has caused many difficulties for pension schemes and their members. But it may have initiated the biggest shake-up in scheme governance for decades.”
Responsible investment
Our expert
Tim Manuel
Head of Responible Investment
The world is facing a barrage of profound challenges: climate change, declining biodiversity, social inequality, rising populism — and a global pandemic. Over the coming years, these will create both investment risks and opportunities.
“Investors need a lot of support to navigate this complex, multi-stage journey of integrating responsible investment into their portfolios.”
“Investors need a lot of support to navigate this complex, multi-stage journey of integrating responsible investment into their portfolios.”
170 ESG
related regulatory measures proposed globally*
Source: ESG regulations and their impact on advice, FT Adviser May 2020.
*Since 2018
Only 1 in 10
DC schemes assess their default option against ESG criteria
Source: How do you Measure Up? Aon Defined Contribution Member Survey 2020
It is still too early to understand the longer-term effect of the COVID-19 crisis on schemes and markets, but it has already started to reshape investment strategy decisions and the way these are made.
Endgame planning and de‑risking
Our expert
Lucy Barron
Investment Partner
Investors have more endgame options than ever before. Consolidators, capital-backed investment solutions and insurance – all can support trustees and sponsors to get to their endgame more quickly. It is encouraging to see that schemes of all sizes are carefully considering the full range of options now available to them.
“The COVID-19 crisis has underscored the need for an asset strategy which is robust and tailored towards the endgame.”
“The COVID-19 crisis has underscored the need for an asset strategy which is robust and tailored towards the endgame.”
Costs and transparency
Our expert
Neil Smith
Head of Investment Costs & Transparency
We are still at the start of the journey to improving investors’ awareness and focus on charges. It’s a journey that has been started several times before but never completed. This time it feels, and is, different. There is now a real impetus (and regulation) behind improving transparency of asset manager costs.
“Our team has been at the forefront of the Cost Transparency Initiative and has worked with almost one thousand ‘completed’ templates from managers.”
“Our team has been at the forefront of the Cost Transparency Initiative and has worked with almost one thousand ‘completed’ templates from managers.”
The Pension Regulator’s DB funding code of practice
Our expert
Shelley Fryer
Principal Consultant
The new DB funding code of practice (Code) is expected to have a significant impact on the development of scheme ‘journey plans’ and investment portfolio de-risking. While The Pensions Regulator (TPR) does not signal a complete change of direction in the draft Code, it does make its expectations much clearer.
“Many have welcomed this guidance by the Regulator. And, while the final details of the Code are yet to be published, its principles can be used now by trustees and sponsors.”
“Many have welcomed this guidance by the Regulator. And, while the final details of the Code are yet to be published, its principles can be used now by trustees and sponsors.”
Now, more than ever, investors need support to continue to protect the retirement income for their members and to manage the increased pressure and demands on their investment governance and operational strategies. We have specialist teams and deep expertise to help you to rise to all these challenges.