UK – Educating the Pensions Regulator and investment are the two greatest challenges facing trustees at present, according to Aon Consulting’s chief actuary Donald Duval.

“The Regulator knows where it wants pension funds to be, but it’s a bit out of touch on how to get there,” he told IPE.

Duval stated that despite the fact that the Regulator takes its responsibilities very seriously, “it comes from an unrealistic and somewhat dangerous idea that people should buy lots and lots of secure bonds”.

A flood of investment into this area, in turn, results in lower returns, he explained.

He added: “One can’t solve the problem by taking more and more money away from companies. One must solve it through investment and returns. The way money is invested is vital to delivering benefits.”

Duval was speaking in London on the employer covenant as an intangible asset of the scheme. This was the fourth in a series of investment conferences hosted by Aon, entitled ‘Pensions: The way forward’.

According to a spokesperson from the Pensions Regulator, “The responsibility for deciding a scheme's investment strategy lies with the trustees.

“It is not for the Pensions Regulator to set investment plans of pension schemes. Trustees must work with their advisers, e.g. scheme actuary, and investment advisers to decide a funding strategy which is appropriate for their scheme.”

The spokesperson added that the Regulator would work closely with the industry, and continue to listen to feedback through consultation on their approach to scheme funding, their codes of practice, and other areas.

Duval also warned that the closure of several DB schemes to new members has raised the potential for the gap to widen between pension funds and companies.

The schemes may be regarded as a “legacy” or separate entity to be managed by the company.

He urged schemes and companies to communicate and interact effectively to reach compromises about investment strategies and risk.

“Trustees must engage with companies’ financial positions, and as employers, companies must let them.”