The Pensions Regulator has urged scheme trustees to “remain vigilant” to short-term market volatility, but keep an overall focus on the “longer term” in the wake of Britain’s vote to leave the EU.
In a guidance statement to trustees and company sponsors of workplace schemes, the regulator pointed out that, while the effects of Brexit were yet to be determined, many commentators had predicted more market volatility in the coming weeks and months.
“Our key message to trustees and sponsors of occupational schemes is to remain vigilant and review their circumstances, but continue to take a considered approach to action with a focus on the longer term,” the regulator stated.
While the European Union referendum has had no regulatory impact yet, TPR said it would continue to monitor the markets and other economic developments and update pension schemes when necessary.
“We will also continue to engage with European institutions such as the European Insurance and Occupational Pensions Authority, while we wait for further clarity as to the nature of the UK’s future relationship with the EU and any transitional arrangements,” the statement read.
Since the referendum result was announced on 24 June, the British pound has plummeted from US$1.48 to US$1.30, while 10-year gilt yields have fallen from 1.4 per cent to 0.8 per cent.
However, the FTSE 100 share index actually gained almost 400 points, hitting a 10-month high of 6,719.
The regulator warned defined benefit schemes that, where TPR had relaxed deficit repair programmes to allow for the sponsoring employer to “investment in sustainable growth” of the business, they must continue use the money for that purpose, rather than putting it towards dividend payments.
The regulator stated post-Brexit “nervousness around business investment” was no excuse and urged defined benefit (DB) scheme trustees to consider interest rates and inflation, concentration of investments, currency exposures, managing liquidity and counterparty risks.
The regulator’s guidance to defined contribution schemes suggested better communication of developments to members and consultation with advisers on asset allocation.
TPR executive director for regulatory policy Andrew Warwick-Thompson said pension schemes plan and invest for the longer term, so trustees should not over-react to short term volatility.
“Contingency planning is an integral part of the effective stewardship of pension schemes,” he said, adding: “We expect trustees to review their plans and how they interact with current circumstances on a regular basis.”
james.fernyhough@ft.com
