Ireland’s pensions regulator has set out clear guidelines for trustee behaviour around risk management, stressing that the proposed list should be viewed as the minimum required of defined benefit funds.
The head of the Pensions Authority, Brendan Kennedy, said trustees were faced with “complicated financial responsibilities” and that the guide was meant as a practical guide for the industry.
The guidelines set out requirements such as assessing asset value annually and monitoring investment returns and increases in liabilities – insofar as the scheme does not see its liabilities significantly altered before the end of each financial year.
Kennedy stressed that all the points highlighted were important to understanding the financial position of individual schemes.
“These guidelines are a minimum, and we expect that, in practice, trustees are likely to be doing more,” he said.
The guidelines, broken down into categories covering scheme data, governance, regular processes and analysis, called on trustees to assess whether they were taking unnecessary investment risks.
It also urged trustees to keep in mind the level of contributions, taken with investment returns, and determine whether these were sufficient to maintain the minimum funding standard over a three-year period.
“The funding standard is a statutory measure of solvency whose purpose is to protect members’ benefits,” the guidelines added. “However, it is important to remember it is a minimum standard only.”
The draft guidelines – published before the Irish High Court ruled that trustees of the Omega Pharma scheme could call on the sponsor to fund the scheme above and beyond the minimum funding standard (MFS) – highlighted that the MFS was only a benchmark.
The Pensions Authority also highlighted the importance of regular impact and risk assessments, while accepting that it was “rarely possible to put a meaningful numerical value on any risk”.
The guidance concluded: “It is not possible to generalise about what steps should be taken, but trustees should bear in mind their responsibility to balance the financial interests of all members of the scheme.
“Some risks will have different effects on different classes of members. This is a challenge for trustees given their responsibility to balance the interests of all members of the scheme.”
The industry has been asked to respond to the guidelines by the end of September.