Association of Member Nominated Trustees DC Asset Security Presentation by Jane Kola, Partner 5 October 2017

Agenda What is DC Asset Security? Why does it matter? What should Trustees do about DC Asset Security? What should Trustees tell members?

What is DC Asset Security? Trustees focus on good outcomes and good governance No scheme is perfect, but where there is: A well considered investment range Suitable defaults fund(s) Acceptable charges Reasonable investment performance Reasonable administration Improving member engagement Good appreciation of governance Engaged and committed employers Program for continuous improvement JOB DONE?

What is DC Asset Security? Some of the “what ifs” of DC investing What if: the provider mishandled the investment? the money was stolen? the provider went bust? PANIC?

Why does it matter? Pensions investment law requires: “The powers of investment, or the discretion, must be exercised in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio overall” Pensions internal controls law requires: “arrangements and procedures to be followed for the safe custody and security of the assets of the scheme” The Pensions Regulator says: “The law requires trustees to give due to consideration to asset protection and what would happen if there was a problem.”

What should Trustees do about DC Asset Security? Ask questions? Do due diligence? Scenario test disaster? DO ALL THREE!

What should Trustees do about DC Asset Security? Example Questions Where are the assets? What does the scheme own exactly? Who controls the money? Example Due Diligence Has counterparty risk been considered? What conflicts of interest may arise at the provider? Can we truthfully sign the warranties and representations? What does the legal report say on the terms? Example Scenario Tests How do we get out if things go wrong? What regulatory regime applies? Could we get compensation?

What should Trustees do about DC Asset Security? BUT REMEMBER: Be proportionate – this is about risk not certainty Balance this risk against the positives – “don’t let the tail wag the dog” Can risks be mitigated sensibly? Record the thought process Monitor the risks – due diligence needs to be updated

What should Trustees tell members? Pensions Law – no obligation to communicate with members The Pensions Regulator says: “...we expect trustee boards to assess the extent to which, and in what circumstances, any loss of scheme assets might be covered by indemnity insurance or similar arrangement, or a compensation scheme such as the Financial Services Compensation Scheme, and to communication the overall conclusion about the security of assets to members and employers.” HOW? Be truthful Be careful in the words you use – don’t over reassure or scare Comment on security in context not in isolation Beware unintended consequences for members

ARC Pensions Law is the trading name of ARC Pensions Law LLP, a limited liability partnership registered in England and Wales with registered number OC398641. The LLP is authorised and regulated by the Solicitors Regulation Authority. A list of names of the members is available for inspection at the LLP’s registered address at 80 Coleman Street, EC2R 5BJ and its Leeds office at Park House, Park Square West, Leeds LS1 2PW. The word “partner” denotes an LLP member, or consultant or employee with equivalent standing and qualifications. Nothing in this presentation should be taken as constituting legal advice. Copyright ARC Pensions Law 2017.