London, 20 May 2020 – UK DB pension schemes are struggling to make decisions in the wake of the market impact from Covid-19; yet the majority expect to extend their time horizons to reach full funding rather than seek additional cash contributions from sponsors, according to a Willis Towers Watson survey of UK pension schemes.
The survey* of 90 UK-based pension scheme managers and trustees found that while 36% were not making any changes to their journey plan in reaction to falls in funding levels, 31% were considering extending their time horizons, with only 15% saying additional cash was the answer.
As a result, the majority of pension schemes will be relying heavily on achieving consistent investment returns over the long term, emphasising the urgency for trustees to ensure they have a robust portfolio construction process in place.
Respondents also highlighted a number of governance challenges that they are currently facing. 37% said they are struggling with making decisions in this uncertain environment, while over 22% said that strategic initiatives had been diverted or delayed, whilst 11% are struggling with enough time and resources to divert to pension issues.
Only 8% said IT infrastructure and/or remote working challenges were reducing committee effectiveness, suggesting that many schemes have managed to adapt relatively seamlessly to a new way of working.
Willis Towers Watson has four key priorities that trustees and pension scheme managers should consider if their scheme is behind its journey plan or if they face the additional challenge of a weak sponsor, in this highly uncertain market environment.
Pieter Steyn, Head of Willis Towers Watson’s UK Fiduciary Management business, said: “Good governance sets organisations apart and in crisis situations such as we are facing in the midst of this pandemic, those schemes with good governance structures were better prepared going into this environment and will be better equipped to respond to stressed circumstances.”
“For schemes relying on investment returns rather than cash we would prefer much more diversified growth asset exposure at present; for example, diversifying away from equity assets into liquid alternatives to reduce risk.”
Pieter Steyn
Head of Willis Towers Watson UK Fiduciary Management
“Schemes may need to revisit their long term strategy in the months ahead but any review should not get in the way of the need to diversify. The impact of this crisis on markets and economies may still have a long way to go and nobody can forecast a path out of it with a great deal of confidence. However, for schemes relying on investment returns rather than cash we would prefer much more diversified growth asset exposure at present; for example, diversifying away from equity assets into liquid alternatives to reduce risk.”
“Crisis situations can also provide an opportunity to reflect by asking whether the portfolio is fit for purpose, whether the scheme was less protected than expected and whether the existing governance model worked optimally to enable trustees to adapt investments where necessary for these rapidly changing circumstances.”
* The online survey of 90 UK pension scheme managers and trustees was conducted between 27th April 2020 and 15th May 2020.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.
