Trustees of retirement saving schemes have improved their understanding of the liquidity risks facing their programs, but they should be more robust when they analyze those dangers, a director at the pensions watchdog has warned.

David Fairs, an executive director at The Pensions Regulator, said that major government and central bank intervention programs around the globe in late 2020 — such as lowering interest rates — helped to stabilize markets during the coronavirus outbreak. But interventions in the future cannot be guaranteed, he added.

Trustees will require a better understanding of how risks can arise within their retirement schemes, particularly in times of market stress, Fairs wrote in a blog on the watchdog’s website on Friday.

“As pension scheme strategies have evolved, we believe that trustees have needed to improve their understanding of the liquidity risks their schemes are exposed to and to actively monitor and mitigate those risks,” Fairs wrote. “We would expect more robust liquidity risk analysis to be carried out to allow, for example, for severe stress-testing for simultaneous market shifts.”

The watchdog also wants trustees to have a clearer understanding of the cashflow and liquidity dynamics of their pension plans and how these might change when the market is under stress, Fairs, TPR’s executive director of regulatory policy, analysis and advice, said.

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