Highlighting the role of trustees (Sponsored)

Jun 09, 2020

The COVID-19 crisis has brought the role of trustees into sharp focus, according to Rose Leonard, Head of Corporate Distribution and CRM with Zurich.

The unprecedented market tumult caused by the COVID-19 pandemic has served as a timely reminder of the need for high standards of governance and risk management in pension schemes. “Pension scheme trustees mind other people’s money, the same as a financial institution,” says Rose Leonard.

“They should be looking at business continuity planning and examining their governing documents to see if they are allowed to operate remotely. They have to make sure that their investment managers can conduct their business remotely and that the administrators are able to pay benefits to members. They also need to pay attention to the strength of the employer covenant to pay contributions.”

Extreme volatility in financial markets has been another product of the pandemic. “This highlights the importance of trustees talking to their investment managers. One thing we would caution against is making hasty market decisions in response to short term market turbulence.”

Also bringing the role of trustees to the fore is the IORP II Directive. The Directive requires that all pension schemes should have an “effective system of governance which provides for sound and prudent management of their activities”. Originally due to be transposed into national law in Ireland by 13 January 2019, IORP II Directive has been delayed because of Brexit and other factors.

For trustees, their qualifications, knowledge, and experience should be adequate to enable prudent management of the scheme. Schemes will be required to carry out and document their own risk assessment at least every three years. Trustees will also have to include consideration of environmental, social and governance (ESG) factors related to investment assets in investment decisions.

Zurich is already prepared for these requirements and has developed its own proprietary tools and processes to support trustees in meeting them. For example, Zurich assesses risks systematically and from a strategic perspective through its proprietary Total Risk Profiling (TRP) process, which allows the company to identify and evaluate the probability and severity of any given risk scenario. “This allows us to develop, implement and monitor improvements,” says Leonard.

In addition, Zurich has put in place a rigorous investment management process which includes multiple layers of oversight and monitoring by regulators, internal auditors, external auditors, external counterparties and custodians, the Zurich Group (parent) and the Zurich Board.

The COVID-19 pandemic and the imminent transposition into Irish law of the IORP II Directive will make it more important than ever for pension scheme trustees to have access to investment managers and scheme administrators who can offer the very highest standards of risk management and governance, she concludes.

“Trustees will have to ensure that they meet all the requirements of IORP II,” she says. “This is important not only from a compliance perspective, but it will also ensure better outcomes for members.”

Zurich Life Assurance plc is regulated by the Central Bank of Ireland.

(This article is sponsored by Zurich.)