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Huw Davies looks at risk management & bow ties . . .

A pension scheme risk management bowtie for the festive season

In its 2019 annual statement, the Pensions Regulator again stressed the need for trustees (and employers) to adopt a ‘joined up’ approach to the management of pension scheme risks. As  independent trustees, we see many different ways in which advisers approach this issue with varying degrees of success in articulating a practical approach.

Pension schemes are not alone in having to manage their risks and there is much we can learn from other industries. Originally developed by Shell in the 1990’s, the risk bowtie could be ‘recycled’ as a useful approach for trustee boards.

It looks to demonstrate how the security of members benefits is protected from the impact of external events. It does this by using preventative controls to protect the level of financial support for the scheme (its assets/funding level and covenant support), and then using corrective controls (or contingency plans) to protect the level of benefit security from changes to the level of financial support.

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