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DB pension schemes ‘make the same mistakes again and again’

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A report suggests that managers and trustees of defined benefit schemes are failing to learn from their mistakes.

The report from the Pensions Institute, part of Cass Business School, is proposing a new approach to managing the issues faced by the trustees and regulators of the UK’s 6,000 remaining defined benefit (DB) schemes.

DB pensions have been under scrutiny as groups such as Carillion have collapsed with holes in their reserves. Pension scheme members have been concerned that their representatives did not hold the company to account.

The new approach suggested by the report aims to address some of the issues surrounding asset returns, interest rates, inflation, and life expectancy. Professor David Blake, director of the Pensions Institute, and one of the authors of the report, said too many pension schemes are ‘making the same mistakes again and again’.

Kerrin Rosenberg, CEO of Cardano and sponsor of the report said: “Many trustees have been early adopters of tried and tested risk management practices that have generated good outcomes for both their members and sponsors. However, there are also a large number who haven’t. Making decisions that don’t deliver the hoped for outcomes is not wrong in itself, if lessons can be learnt and shared. However, making the same poor decisions many times over is the problem. If we can create a culture of shared learning, we may be able to give the pensions industry the  knowledge to avoid the mistakes of the past and of their peers.”

The report suggests that problems include a focus on the short-term by trustees. There has also been a failure to challenge the sponsor’s recovery plan or dividend policy – this has come into focus in the case of Carillion.

Trustees may also fail to recognise biases in others, such as the career concerns of finance directors who need to show that the company is doing well on their watch, or of advisers who temper their advice to clients to avoid losing the contract.

The report said trustees and boards often don’t learn from their mistakes, with many boards not having a culture of seeking out and revealing mistakes. It recommended seeking out ‘new blood’ board members, improving diversity, sharing best practice and using ‘post-mortems’ where mistakes are made.

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