Huw Davies looks at risk management & bow ties . . .
A pension scheme risk management bowtie for the festive
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
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.