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Are you ready for what 2025 holds for DB trustees?

It’s easy as DB pension scheme trustees to find yourselves only focusing on the projects that need your immediate attention. There’s so much coming up in 2025 and beyond and we’ve summarised what we think are the 12 key areas.

Perhaps you could diarise one topic per month to make sure it’s on your radar and think about whether any action is needed.

Even if no additional actions are needed, it’s important to give these topics your attention so that you can be sure, and so that you’re well prepared to take advantage of any opportunities that may arise in future.

DB funding code

The new funding regime applies to all valuations from 22 September 2024 and introduces some big changes. Schemes are now required to have a ‘funding and investment strategy’ agreed with the sponsor, and to submit a Statement of Strategy to TPR as part of a valuation. We expect those with imminent valuations will already be considering this in detail.

Even if you don’t have a valuation this year, we suggest that you start talking to the sponsor to ensure you are aligned on strategy, and consider any training needed.

Covenant guidance

December 2024 brought us TPR’s long-awaited updated covenant guidance, which builds on the content in the funding code. Whilst there aren’t any big surprises in the guidance, it provides welcome detail on the concepts introduced in the funding code.

It’s important to note that the guidance isn’t just relevant for those with upcoming valuations; TPR is clear that covenant should be carefully assessed in relation to corporate activity, and trustees will need to consider changes to new covenant concepts such as covenant reliability and longevity periods. Some schemes have previously relied on a trustee, perhaps a professional trustee with the relevant background, or lay-trustee with the right experience from working at the company to provide covenant updates.

These schemes should consider whether now is the time to formally appoint a covenant adviser.

Admin capacity

Admin capacity appears to be the topic of the moment. You may think this isn’t a worry that applies to you if your administrator is delivering well to SLA and providing a good quality service – but any project work will likely be provided by a different team.

If you are expecting any GMP or data work in the near future – this is likely if an insurance transaction is on the horizon – make sure that you’ve flagged this to your administrator and secured your place in the queue.

It’s worth planning any admin project work as far in advance as possible to make sure that your administrator can also work to your timescales. LCP’s data services team and our GMP equalisation experts can help you with your projects.

The insurance market

Demand for buy-ins and buy-outs has rocketed over the last few years, and the market remains buoyant. New entrants means that capacity has increased, and we’ve found that well prepared schemes can still achieve attractive pricing.

It’s more important than ever to be clear on your endgame strategy – we find that for most schemes, insurance remains “when, not if”. Make sure you are taking steps now to be well prepared when the time comes to both approach the market and also post transaction to continue to get traction in a busy market.

This could include training on the process for trustees, tackling data projects or appointing a pensions risk transfer and/or post transaction specialist.

Run on debate / use of surplus

Despite buy-out pricing remaining attractive for many and a busy market, we’re seeing more and more schemes actively choose run-on as a medium to long-term plan. For example, if you’re a well-funded scheme and have a DC section in the same trust, you may find that your sponsor is keen to run-on for now and use any DB surplus to support DC contributions. It’s so important for trustees and sponsors to be aligned on a scheme’s goals (indeed this will be required for the “statement of strategy” introduced as part of the new funding code) so that you can work towards them productively.

Continue an active dialogue with your sponsor to make sure you have an agreed end-game strategy, so that you aren’t blindsided by a change in plan in the future!

Clara

Clara made headlines in 2024 through its first transfer for a scheme with a non-distressed sponsor potentially opening up the market for other deals.

Whilst the attractiveness of Clara as an endgame will be very scheme-specific, it is worth understanding the circumstances where it might be attractive to understand if it could be a viable option for you.

LCP led on the trustee advice in the recent Clara deal and can provide insights, training, and guidance for those considering its potential relevance to their scheme.

Pensions dashboards

Despite delays, pensions dashboards are coming! For the biggest schemes, connection deadlines are as early as May 2025. That could mean that there are only one or two trustee meetings between now and your ‘connect by’ date. Whilst trustees will be largely reliant on administrators to implement what’s needed in the background, dashboards are the ultimate responsibility of the trustee so you need to make sure you’re in close contact with your administrator and making the decisions needed.

The launch of pensions dashboards will mean more members getting in touch with the scheme, so make sure your administrator is prepared for an influx of queries and that you have an appropriate level of automated calculations.

General Code

The majority of schemes will have their first Own Risk Assessment (ORA) due in 2026, so 2025 is the time to prepare.

For those that haven’t yet reviewed your Effective System of Governance (ESOG), it’s crucial that you do this during 2025, so that you know where you are and have time to fix any significant gaps ahead of writing your first ORA.

For those that have already done a lot of preparation, it may be some time since you looked at your ESOG, so it’s worth taking a look and making sure it reflects all of the good work that you’ve done since then.

Systemic risks and unexpected events

Systemic risks, such as climate change, anti-microbial resistance and herding of assets, have the potential to destabilise markets, undermine economic growth, and even cause financial market collapse. Even the most well-prepared pension schemes are not immune, as these risks can threaten funding levels and trustees' ability to pay member benefits.

We believe trustees should consider any actions they can take to support financial stability and to safeguard the broader environment in which their schemes operate, such as signing up to LCP’s climate policy asks.

We live in increasingly uncertain times, with geopolitical instability, extreme weather and systems outages that can affect IT infrastructure having repercussions both local and globally.

Trustees will find value in scenario planning (also known as wargaming) sessions to assess their schemes’ resilience to systemic shocks and other unexpected events, understand how they might react, and identify improvements that can be made to incident response plans.

Navigating the ESG backlash

Following the re-election of President Trump, we expect companies and investors to be under increasing pressure to row back on their Environmental, Social and Governance (ESG) activities. This will likely have consequences for UK pension schemes. Investment managers may place more focus on short-term financial factors, both when selecting investments and when engaging with companies, reducing their alignment with the long-term interests of pension scheme members.

Trustees should monitor how their investment managers are navigating this pressure and, if they see misalignment, remind the managers of their expectations on responsible investment. To avoid being the target of any backlash themselves, they should ensure their RI activities and communications always have a sound financial rationale.

For example, encouraging investee companies to adopt more sustainable business practices to support the long-term health of the economic, environmental and social systems that underpin financial markets and hence members’ pensions. The FMLC’s recent paper on fiduciary duty may help with this.

From policy to portfolios

With the "year of elections" behind us, 2025 will reveal how newly empowered governments will shape national policies, potentially altering economic trajectories and impacting markets. For investors, these shifts highlight the importance of regularly reviewing strategic asset allocations.

Trustees should consider how key geopolitical themes, such as fiscal sustainability, US exceptionalism, and trade wars, could affect their portfolios, and adjust their asset allocations to better manage the risks and opportunities 2025 presents.

Making use of technology

Are you making the best use of the tech offered by your advisers? We have been working to evolve and unify our DB pensions technology further – 2025 will see some exciting new developments so watch this space!

Explore our technology designed to help trustees and sponsors make better decisions for their pension strategy.

There's a lot for trustees to think about over 2025. If you want to discuss any of these topics in more depth, please get in touch.

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