Many pension schemes think about planning for contingencies when reviewing internal controls and compiling risk registers, but should their planning extend further?

It clearly makes enormous sense to know what actions are to be taken when one of those low probability, but high impact risks actually happens. You need to know what the Trustees will do when their star investment manager falls under that proverbial bus (or runs off to establish a hedge fund). It is vital to be aware what procedure has been agreed by the Trustees to enable critical decisions to be made quickly.

However, while it is one thing to address risks relating to contractual issues that the trustee board controls, what would your trustee board do if news of a hostile takeover of your Fund’s sponsoring employer were to appear in the headlines of tomorrow’s FT?

Would key trustee directors be conflicted and need to stand aside? Have you already decided on the advisers that would support the Trustee Board in such circumstances and built a relationship with them? Mergers and acquisitions often generate great momentum and Trustees need to be able to ‘jump in’ at short notice and demonstrate robust behaviours in order to protect members’ interests. Similar circumstances might arise if the sponsoring employer were to announce a major refinancing plan.

Time spent considering these issues and putting in place properly documented and authorised procedures could just be one of the most valuable investments (in time) that Trustees can make to help protect the long term interests of their members. Don’t let sound contingency planning be just a good intention – after all, we all know where that road leads.

Mark Hodgkinson