October 2024
In partnership with Schroders.
Member-nominated trustees (MNTs) form a critical component of the UK pension system, representing the interests of scheme members and influencing how their pension funds are governed and invested. The landscape of pensions continues to evolve and present new challenges and complexities.
To gain a more profound understanding of these challenges the AMNT, in conjunction with Schroders, conducted a survey involving 58 MNTs from over forty pension schemes1. This report presents an analysis of our survey findings, offering insights and suggestions for the MNT community and the broader pension industry.
Key findings show improvement in Trustees confidence in reaching beneficial outcomes for members. Though buy out remains the primary end game there is a significant increase in funds moving to self- sufficiency. One of the most significant highlighted threats to Funds was Cyber attack with its harmful effect on funds and its members.
Our analysis is further enriched with insights from trustees who provided comments on their motivations, perspectives, and challenges regarding their investment and governance approaches. The report also underscores the key trends and implications that emerge from the data, as well as the opportunities for improvement and collaboration.
We hope you find the findings insightful and actionable.
The questions in this section aimed to provide a comprehensive overview of the investment strategies and orientations of the pension schemes, as well as the impacts of market events and government policies on their investment decisions.
Our survey findings reveal a cautious approach towards altering governance models after the gilt crisis. Most schemes (57%) are not considering a change, indicating a strong belief in the resilience of their current governance structures amidst market turbulence. However, 14% of respondents expressed openness to changing their governance model, acknowledging the potential need to evolve governance practices to navigate future challenges more effectively.
Among the 36% of trustees considering a change in investment strategy, reasons varied, reflecting the multifaceted challenges faced by pension schemes. These ranged from de-risking and maintaining lesser amounts of equities, a focus on Liability-Driven Investment (LDI) strategies, changes in fiduciary managers, buy-out preparations, and pursuit of specific investment return targets.
Meanwhile, those not planning changes provided insights into their current strategies, such as an income and ESG focus, confidence in endgame investments, and pre-emptive adaptation to market trends.
Trustees' responses to the Mansion House Reforms revealed a range of opinions regarding the government's desire for pension schemes to invest in UK businesses and help grow the UK economy. While some supported the reforms (18%), the majority (43%) expressed concerns including potential suboptimal outcomes for members, the role of pensions in government policies, and the risks associated with illiquid investments.
The prospect of rising interest rates has raised concerns among trustees, particularly in relation to the pension pots of those close to retirement who may have been lifestyle switched into bonds prior to their capital value decline.
The evolving economic landscape, characterised by rising inflation rates, has prompted some pension schemes to reassess their investment strategies. Amidst the backdrop of rising inflation rates, the experience of trustees, advisors, and executive teams in managing investments and governance under such economic conditions could come under scrutiny.
While some express concern over the potential limitations of inexperience in such economic conditions (14%), a sizeable portion of trustees (43%) display confidence in the resilience and adaptability of their decision-making structures.
1 in 5 respondents have already made changes or are expecting to adjust their investment approach due to inflation. These adjustments reflect a proactive stance towards safeguarding assets and optimising returns in an inflationary environment:
A significant majority of trustees (79%) indicate no immediate plans to alter their investment strategies due to inflation. This suggests a level of confidence in the resilience of existing investment approaches or a belief that current strategies are well-equipped to handle the impacts of inflation. However, some comments suggest that strategic reviews may be on the horizon, indicating a readiness to reassess and adapt, as necessary.
This section provides a detailed analysis of theendgame objectives and strategies of pension schemes, as well as the challengesand considerations they face in achieving their desired outcomes.
Trustees' responses reflect diverse endgame objectives and preferences, tailored to the unique circumstances, and needs of their pension schemes:
Trustees identify several challenges in the path to a buy-out. The top three hurdles were insurer capacity, current pricing and the sponsoring employer having differing views. These hurdles underscore the operational and strategic complexities involved in navigating towards an endgame.
In terms of return objectives, about 48% of respondents are open to targeting lower return objectives for longer to achieve their endgame with lower leverage on LDI, indicating strategic patience. Conversely, 52% of respondents prefer not to target lower returns for longer, reflecting a variety of strategic preferences and considerations in reaching endgame goals.
Over one third of respondents view run-off as a viable option for their scheme, showing confidence in the sustainability of continuing operations and meeting obligations without seeking a buy-out.
Recent press comments have brought to prominence the danger of, and consequences of, cyber-attack. Particularly referencing China but also criminal activity that has turned such attacks into an organized business.
Attacks on corporate business have been reported but usually after the company had ‘negotiated’ with the attackers a ransom to remove the offending software. Pension funds are targets given their asset base, the need to pay pensions and the storage of individual s data. Our latest survey has shown that trustees are aware of, and deeply concerned, about the potential disruption such attacks could have on the integrity of the fund. Trustees have emphasized the need for their Administrators to work openly and in collaboration with the fund.
Data protection and the potential of Cyber-attack have now reached a higher point in the risk register of Pension Funds with the need to have contingent plans in place to deal with any breach or attack.
The AMNT will promote these concerns with the Government and regulator and provide educational support to its members on this issue. This section explores the investment in governance software and the level of cybersecurity preparedness among schemes.
The survey data reveals a varying degree of investment in governance software among the respondents. A total of 45% have developed governance software with future upgrades planned, indicating a proactive approach towards enhancing governance capabilities. A further 19% have made a basic investment, suggesting a foundational level of technological support. However, 29% of respondents have not invested in such software, and 7% are considering it, highlighting a disparity in the adoption and perception of the utility of governance technologies across the sector.
In terms of cybersecurity event awareness, only 6% of schemes that have experienced cyber events struggled to get a clear picture of what happened. The majority (50%) are fully aware of the details and the remaining 44% are aware to an extent. For schemes that have experienced cyber events, 61% reported full partnership with their administrators during member communications, while 39% experienced a limited level of involvement.
Nearly 1 in 5 respondents do not feel comfortable about the impact of any future cyber event, reflecting ongoing concerns about cybersecurity risks. However, the majority do feel comfortable, and many (48%) have put in place a recovery plan for any future event.
Beyond the main themes, the survey uncovered additional crucial considerations for MNTs in 2024:
