Your questions answered

The FRC's Stewardship Code sets high stewardship standards for asset owners and managers, and for service providers that support them, through a set of “apply and explain” principles accompanied by reporting expectations. It is complementary to the (UK) Corporate Governance Code.

Our stewardship expectations of investment managers

Voting analysis helps asset owners understand how their managers vote on important resolutions and where approaches differ across managers. It can identify significant holdings, support more focused oversight and make it easier to challenge managers where voting appears inconsistent with client expectations or stewardship priorities.

A good pensions administrator makes your pensions scheme members’ lives easier – when they come to take their benefits, have to report a death, or have a question they want answering. It will have robust and intuitive systems, staff that are knowledgeable and empathetic, and be at the forefront of legislative and technological developments in the pensions space.

The UK regulatory framework offers robust safeguards, including:

• Capital requirements: Insurers must hold sufficient reserves to meet liabilities under stress scenarios.
• Close supervision: The PRA closely monitors insurers, with larger insurers receiving tailored supervision based on their risk profile and activities.
• Governance standards: Insurers are required to maintain robust governance structures and appoint qualified individuals to oversee critical functions.

These protections, while strong, are not intended to create a zero-failure regime. Trustees should still undertake due diligence to understand the specific risks and resilience of their chosen insurer.

Surplus extraction could enable scheme members to have additional pension benefits. The Pensions Regulator (TPR) supports the government's proposals, emphasising that any release of surplus should only occur when schemes are fully funded and appropriate protections for members are in place. Trustees are expected to ensure that the security of members' benefits is not compromised when considering surplus releases. (The Pensions Regulator) 

The sponsor will often bear the costs associated with the buy-out and wind-up. There may also be complex discussions over topics such as return of any surplus assets and who carries the risk for any historical errors or future claims.

Key priorities for the sponsor will often be:

• Ensuring key objectives (both sponsor and trustee), timelines and budgets are outlined and agreed between all parties upfront;
• Maintaining regular communication between the sponsor, trustees and advisers to monitor progress; and
• Working collaboratively to address challenges and acknowledge respective interests.

For trustees the key priority will be running a well-managed process to have confidence that the right benefits have been secured for the right people and their trustee duties have been discharged appropriately.

The immediate focus after completing a buy-in transaction will be informing scheme members, implementing any new member option terms and ensuring funds arrive in the trustee bank account to meet benefit payments. The next step will then be working through a data cleanse process to perform one last check that all members have been identified, and the correct benefits have been secured with the insurer before looking to move the policy to buy-out. This will often involve grappling with technical areas like GMP equalisation and resolving legal uncertainties, and there may be surplus assets to consider too.

There will also be other member benefits to secure outside of the scheme such as members’ AVCs or DC funds and historical annuity policies.

Trustees will also need to ensure they have adequate protection in place through insurance and / or a sponsor indemnity in case a claim arises after the scheme has wound up.

Moving a scheme to wind-up is a complex process involving a number of interdependent workstreams and requires a thorough understanding of the processes involved. Key trustee steps to help ensure a seamless transition are:

• Agreeing clear project plans, budgets and regular reporting with all parties to ensure a smooth move to wind-up.
• Drawing on experienced project management support to help navigate the many interdependent workstreams.
• Obtaining practical advice from experienced specialists on technical areas and common issues.
• Initiating early discussions with the sponsor to ensure robust trustee protections at the end of the wind-up process.

With an estimated launch date for the MoneyHelper dashboard being 2027, the honest answer is nobody really knows for sure! However, it’s very likely that member queries will increase, including those from members who want a firm retirement or transfer quote. Members who have been told they have a ‘possible match’ will also get in touch with administrators, providing new or amended information that will need processing. Trustees should make sure their administrator is prepared for this increase – however big or small it might turn out to be.

Policies that help pension funds grow in size can lower barriers to investing in private markets and infrastructure, though much of the scale-up is happening already. The introduction of Long-Term Asset Funds (LTAFs) also has the potential to reduce barriers to investment in more illiquid assets by DC pension schemes.

Improved funding levels and strong insurer appetite have made buy-in and buy-out more achievable for a wider range of pension schemes. For trustees and sponsors, this creates a clearer opportunity to secure member benefits with an insurer, reduce long-term risk and move closer to their chosen endgame.

Differences are due to several factors, including market maturity and tax incentives. For example, Australia’s mandatory DC system has developed over a much longer period and at a significantly greater scale, while New Zealand offers a tax incentive for investing in domestic equities rather than global equities.