A look ahead to 2023: A year of reflection, consolidation and recasting strategies
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The great divide
Pension scheme trustee boards and sponsoring companies will wake up on 1st January in a very different place to where they were a year ago.
Russia’s invasion of Ukraine, soaring energy prices, rising interest rates, and the cost of living crisis, have all contributed to a market environment that resembles what we last saw during the rampant inflation of the 1970s, rather than what we have come to know and expect for decades. As a result, the last 12 months have certainly been a major test for the whole investment and long-term savings industry.
Next year, we will see a bifurcation of schemes. Some schemes have found themselves generally in better funding positions and well ahead of where they expected to be. The latest edition of Pension Protection Fund’s Purple Book confirmed this, and as a result we expect
insurance companies to be particularly busy next year. However, at the other end of the barbell are schemes that have found themselves in worse positions than a year ago, and perhaps leaning on their sponsors for more support, which in turn are feeling the squeeze too.
Whichever side of the fence schemes fall, it will all be set against the backdrop of a number of new challenges and opportunities. From a macro perspective, we expect inflation to remain structurally higher, central banks terminal rates need to be established, and earning
expectations should reflect recession risks. From a regulatory perspective, 2023 is likely to be the biggest year for regulatory change in the DB world since 2014 (the implementation of the Funding Code of Practice 03), or even since the Pensions Act 2004. Trustees and corporates will see the long awaited, and highly anticipated, DB Funding Code, in 2023 and the
updated notifiable events regime.
From a sustainability standpoint, this year feels as if the industry has somewhat stalled. COP27 was largely unsuccessful and globally, we will emit more this year, than last year, and more next year than this year. Pension schemes have an important part to play in supporting the transition. Next year, we will see more schemes fall into the cohort required to submit reporting in line with TCFD requirements. We also expect to see more collaborative engagement initiatives. For us, one such initiative will be participating in ADVANCE, the PRI-run collaborative engagement on human rights, engaging companies to fully implement the UN Guiding Principles on Business
and Human Rights and, address human rights issues in the company’s operations and supply chains.
Given the scale of volatility and upcoming regulation, schemes cannot afford to become complacent as they work through their journey plans. We encourage trustees to reassess their governance structures, consider plausible downside scenarios and assess how to better
safeguard the journey toward their chosen endgame. In our view, integrated risk management remains at the very heart of our pension schemes’ thinking and must not be taken for granted.
Over the following pages representatives from across our extraordinary teams at Cardano set out key areas that trustees and corporates will be affected by next year. The theme very much seems to be that 2023 will be characterised as a year of reflection, consolidation and recasting strategies.
A look ahead to 2023
The theme very much seems to be that 2023 will be characterised as a year of reflection, consolidation and recasting strategies.
A look ahead to 2023
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