Aon is suggesting that the Pension Regulator’s (TPR) proposed Statement of Strategy may grant employers more influence over investment decisions for mature defined benefit (DB) schemes.
The existing proposal requires that when schemes reach a certain level of maturity, trustee boards work with employers to develop asset allocation strategies for the ‘Growth’, ‘Matching’, and ‘Hybrid’ classes.
The funding-related Code of Practice is expected to be published in the summer, but not before TPR has until April 16, 2024, to provide feedback on the Statement.
DB schemes must devise a Statement of Strategy for valuations with effective dates post-September 22, 2024.
Aon partner and co-head of corporate investment Craig Watson says: “In its response to the consultation on DB funding and investment strategy in January, the Department for Work and Pensions has been clear that, ultimately, trustees remain responsible for a pension scheme’s investment strategy and only need to consult the employer regarding it.
“However, agreeing a high-level investment strategy with the employer within the Statement of Strategy, setting out how the trustees intend to invest once the scheme is significantly mature, will naturally increase the degree of influence that scheme sponsors have on investment matters.
“In recent years, we have seen a continued trend towards scheme sponsors being more engaged on the investment strategy from the trustee. In fact, more and more are beginning to recognise the benefits of independent advice to ensure proposals are aligned with the sponsor’s interests.
“The new requirements are likely to lead to more sponsors seeking their own advice before signing off on the intended long-term high-level investment strategy. This will be part of a broader discussion and a requirement to agree on the long-term objective of the scheme such as buyout, run-on or moving to a superfund.
“The impact of gilt yield volatility in the autumn of 2022 also demonstrated how fundamental investment strategy is for schemes in order for them to remain on course – and also the potential benefit that a second pair of eyes, offering an independent challenge, can provide in ensuring portfolios remain suitably robust.”