Opinion: Navigating the crisis
Pension schemes and sponsors are doing their best to navigate the pandemic day-to-day. But how can you come out of the other side of the crisis safely?
What should I be doing and when?
The impact of the pandemic on each scheme, sponsor and member will be different, and your recovery will be different too. As your priorities change over time, you will need to focus on what’s most critical for your scheme at each point. This means not spending precious resource on activity that isn’t. Don’t take on too much at once.
Schemes and sponsors are already dealing with the immediate and urgent issues. This reactive approach is entirely appropriate at the outset of a crisis which took us all by surprise. But as the situation develops it’s crucial to shift to a pro-active approach, to plan ahead and be ready to make quick decisions. This will enable you to react quickly to future events, many of which we can anticipate, even if the timing and likelihood are unpredictable. You will be prepared to take swift action to improve the situation and re-position the scheme – particularly investment strategy opportunities as markets open up again and recover.
So there are lots of issues to think about but each scheme should only take a small number of actions at any point in time. Our framework for the crisis puts all of this together onto a single page summary, showing the immediate issues and the longer-term in tandem, to help you develop a plan that’s right for you and your scheme.
How might the crisis develop?
The framework takes you through five broad phases to ultimate recovery, although there is unlikely to be a smooth and clear transition from each phase to the next. We identify the priority actions for now, but also the priority actions that will come later. The five phases can be summarised as:
All schemes will need to secure their operations, identify how scheme finances have been affected, and what the impact has been on the sponsor.
Many schemes may be past this phase by now. Those suffering a more severe impact in any area may still be dealing with the fall out. There is a risk of returning to this phase if there are further shocks either at a macro or scheme / sponsor level.
Schemes and sponsors may have a long checklist of actions to work through – but should prioritise and limit the time spend on non-essential activities. Those priorities will be different depending on circumstances but are likely to include operational changes, investment issues and the sponsor protecting its business. Schemes with severely distressed sponsors may be very focused on solvency concerns with limited scope for less critical actions.
We may be in for a prolonged period of uncertainty and false starts at recovery. Sponsors and schemes will need to closely monitor the situation and respond to emerging risks, and at this stage there may be attractive investment opportunities for those that are prepared and have a clear plan.
This period of returning to normality is when activity that was paused might recommence. There are likely to be opportunities to lock-in improvements and to make strategic changes towards longer-term goals, as markets and sponsors grow in confidence.
As we return to a ‘new normal’, schemes and sponsors will need to consider how their strategic aims may have shifted. Business plans will be re-written and learnings from the crisis will inform a raft of strategic changes – from operational processes through to risk management approaches.
Each pension scheme and sponsor will need a different approach – one that works for you. If you would like to discuss how to get the best outcomes for you and your scheme members, please contact us.