Turnbull for pension schemes

The team n Angela Crum-Ewing n David Jones n Julie Long n Rob Boddye n Steve Balmont n Terry Raby

Pension schemes - a risk management problem n Substantial importance –£700 billion NAPF member’s funds –£1,600 billion UK equity market capitalisation n Complexity n Interests of both sponsors and employees that funds are well managed

Combined Code/ Turnbull solution n Familiarity n Big picture n Flexible n Common-sense requirements of the code –Maintain a sound system of internal control –Review its effectiveness n Motivated by losses from corporate failures

Method n How to manage risk n Areas of Risk –Trusteeship –Perceived Value of Benefits –Administration –Investments –Corporate Change n Disclosure –Trustees statement on internal control

How to manage risk n Roles of trustees and their delegates n Maintain a sound system of internal control –Risk identification –Likelihood –Risk management (controls) –Residual

How to manage risk n Review the effectiveness of internal control –Review reports received during the year –Annual assessment of changes in significant risks –Scope & quality of ongoing monitoring –Significant control weaknesses –Independent assurance - Internal Audit n Use of sponsor’s internal auditors n Assurance re system of internal control

Areas of Risk - Trusteeship n Appointment n Competence – knowing the scheme n Competence - understanding powers & duties n Advice n Delegates

Areas of Risk - Perceived Value of Benefits n Adequate understanding, adequate information n Benefits relevant to patterns of employment & life n Socially responsible investment

Areas of Risk - Administration n Record keeping n Benefit payments n Contributions n Systems infrastructure n AVC assets

Areas of Risk - Investments n Matching assets & liabilities n Investment performance n Manager appointment & ongoing monitoring n Manager internal control & regulatory environment n Investment restrictions, manager activism n Security of Assets n Custodian internal control & regulatory environment n Taking assets out of custody

Areas of Risk - Corporate Change n Mergers, acquisitions etc

Disclosure n ‘- the trustees... use the annual report to demonstrate how they have discharged their duties and as a means of satisfying themselves that they have properly met their responsibilities’ SORP para 1.4 n Combined Code requirements are to – maintain a sound system of internal control and review its effectiveness n So the Turnbull reporting requires –Acknowledgement of responsibility for maintaining and reviewing –Disclosing that there is an ongoing risk management process –Summarising the process involved in reviewing

Summary n Pension schemes are important & complex n Require risk management methods n Combined Code Turnbull solution –familiar, big picture, flexible n Generic risks n About three months away