KPMG responds to The Pensions Regulator’s guidance on defined benefit (DB) investment strategy, issued today. Simeon Willis
“There’s currently huge disparity in how defined benefit schemes are run so advisers will find this a useful objective reference when steering clients towards best practice.
“Perhaps most importantly the regulator’s guidance acknowledges that the cashflow of a scheme should not be the sole measure of its risk. The industry has been preoccupied by ‘cashflow negative’ schemes – those that have more outgoings than incomings – but this neglects the fact that the level of risk a scheme takes should be based on a much wider range of factors, not least the strength of covenant. Currently people wrongly think that being cashflow positive means you can take more risk. This guidance reflects the wider factors that need consideration when assessing a scheme’s risk.*
“The regulator also highlights some of the challenges around the use of fiduciary management. This guidance builds on the FCA’s asset management competition interim report and makes it clear that schemes still retain responsibility for their investment strategy. Fiduciary managers need to be appointed with a clear mandate where conflicts of interest have been mitigated and appropriate independent advice taken.”
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*See more on this in our recent report Cashflow isn’t such a negative
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