Maurice Whyms Monday 7 th December 2009 The CFA Institute Seminar The Investment Challenges Facing Pension Trustees- Are We Entering a Whole New Ballgame?

Agenda – Part 1 Defined Benefit Schemes The current position of Defined Benefit schemes The future operation of schemes and the task facing trustees The new ballgame and why risk management is key Help needed

Considerations – will the DB scheme continue? If No: – What happens in relation to the deficit? – What happens in relation to future pension provision? If Yes: – How does one get the pension scheme on to a stable and sustainable footing? – Having developed a plan, how will the pension scheme operate so it continues to be stable and sustainable?

Operation of a Pension Scheme FundingRiskBenefits

Defined Benefit as it was... FundingRiskBenefits

Defined Benefit as it is and will be in the future? FundingRiskBenefits

FundingRiskBenefits...or maybe even?

Some of what’s happening in the market Tier 2 Increased employer contributions Increased member contributions Closure of DB schemes to new hires Ceasing discretionary benefits Changes to future accrual Cease future accrual Freeze salaries Reduce accrued benefits Wind-up Increased employer contributions Increased member contributions Closure of DB schemes to new hires Ceasing discretionary benefits Changes to future accrual Cease future accrual Freeze salaries Reduce accrued benefits Wind-up Tier 3 Tier 1

Risk management was important before It will be many more times important in the future because downside may well have a significant impact on benefits...and the gearing that exists in schemes because pensioners have priority, increases this even further Reliance on employer covenant?? What does this mean?

Cont. We are seeing signs that risk management is moving to the top of the agenda: The Pensions Board is continuously emphasising the need for greater risk management There are some signs that unions are pushing for the appointment of professional trustees particularly if benefits have been reduced Recent investment guidelines from the IAPF

Options for dealing with the main investment risks: Help in developing a target or “end-game” position A clear outline of all of the options for dealing with risk Options for setting up risk management to operate on a dynamic basis Developing a clear plan to manage risk: How will the scheme operate as it manages towards its end-game objectives? What if upside happens? What if downside happens? Exactly who will do what and when? Execution So what help will trustees require?

If it is a new ballgame, How can the investment industry help trustees to meet these challenges effectively and efficiently? And so the challenge is....

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