Sets ten key questions to assess resilience
LONDON (2 April 2020) – Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has set out ten questions to help defined benefit (DB) pension schemes assess their resilience – and, in particular, whether their investment arrangements are suitable for the current testing circumstances.
Daniel Peters, partner at Aon, said:
“With the effects of this pandemic being felt across many regions, markets and industries, not a day goes by without new predictions about the economic and human impact. Inevitably, this is also posing all sorts of issues for pension schemes.
“With this in mind, Aon has compiled ten questions to check the resilience of schemes’ investment arrangements to a crisis, whether it’s the current situation or something else. The checklist addresses a range of areas such as liquidity, governance structure and market opportunities.”
- Ensuring cashflow: Are you able to access the cash you need to pay benefits?
Do you have a robust cashflow and have you tested its resilience to stress situations?
- Preserving hedges: Do you have a robust policy in place to ensure that LDI and currency hedging collateral calls can be met in the required timeframe?
- Maintaining future returns: Is the current asset allocation within the control ranges of your strategic allocation?
- Executing decisions: Are there sufficient systems and processes in place to allow decisions to be made and paperwork to be signed remotely?
- Pending investments: Have you reconsidered new investments or any other strategy changes planned?
- Business continuity: Are you comfortable with the business continuity plans of your investment managers and other providers?
- Market opportunities: Can you react in a timely fashion to take advantage of market opportunities?
- Covenant impact: Have you considered the impact on sponsor covenant and whether this has implications for your investment strategy?
- Contingency planning: Can you continue to run the scheme if the current situation continues for six months or a year?
- Re-evaluate your recovery plan: Have you reassessed where your scheme is versus expectation? Do you need to take action?
Daniel Peters continued:
“In our view, if schemes can’t tick questions 1 to 5, they need to prioritise taking action in those areas to ensure that they can manage the impact of a crisis effectively. Once they have resolved those issues, they need to switch focus to 6 and 7 to mitigate - and potentially take advantage of - further shocks and their impact on key stakeholders.
“Once questions 1 to 7 have been considered and acted upon, schemes will be well positioned to handle the issues that might arise during a crisis. However, they shouldn’t stop there – it will be worthwhile their reviewing the longer-term impacts to ensure they are fully aware of all the potential knock-on effects.”
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