Rob Gardner, partner at the risk consultancy, said: “Lehmans’ and Woolworths’ pension schemes both show that the once extreme scenario of an insolvent sponsor and a poorly funded pension scheme can happen very fast.
“Pension funds whose sponsors bear any resemblance to a 2007 Woolworths should start asking themselves ‘what steps can I take to reduce the correlation between the performance of the pension scheme assets and the financial health of my sponsor?’”
Schemes need to be aware of the relationship between the health of a sponsor and the health of a pension scheme, as well as their dependence on their sponsor, and the ability of either the scheme or sponsor to pull the other down.
Open communication between trustee and sponsor is imperative, and trustees should be working with their sponsor to try to achieve higher levels of security – or even access to an escrow – which would protect the scheme should their sponsor disappear, Gardner continued.
“Measuring and evaluating risks is absolutely vital,” he said. “What must accompany that is a regular, thorough monitoring system that can check the pulse of the scheme more often than just quarterly.”
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