Over the last decade, the performance of the UK’s defined benefit (DB) pension sector has been far from satisfactory. Funding deficits have grown by around £400 billion and some 1,000 funds may be en route to the Pension Protection Fund (PPF).
Contrary to the views of many, this outcome was entirely avoidable, had tried and tested risk and investment management tools been employed. Some schemes did embrace this route. The majority did not. That such tools weren’t widely used is down primarily to one factor: a failed governance system that has never been fit for purpose.
No-one has been accountable, in the traditional sense, for the financial results of pension schemes. That is not to say trustees or indeed sponsors have failed in their defined roles. They haven’t. But their defined roles leave a gaping governance gap which means no one is truly responsible for the investment and risk decisions taken about the scheme.
There is only one way to adequately address this. British pension funds need the same model of governance that modern companies must adhere to. Nothing less than a change to enforce this approach will do. If we can seal off this governance gap, it will be a step change in helping trustees make the £1.5 trillion DB system, on which millions of people depend, more robust for the coming decades.
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