Pension scheme trustees have been urged to broaden out their governance conversations beyond liability-driven investment (LDI), as an industry poll revealed that 41 per cent of pension professionals view a major UK cyber attack as the most worrying thing facing their scheme.

The poll, held during the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2023, showed that a prolonged period of deflation was the second most concern, cited by 16 per cent of respondents, followed by a climate emergency (13 per cent).

However, only 19 per cent of respondents said that they have considered the risks associated with a major cyber attack in the UK for their scheme, while nearly a quarter (24 per cent) had considered the climate emergency.

When asked whether this contrast showed that the risk management process could be being “disrupted or corrupted”, Isio chief investment officer, Barry Jones, explained that “risks will move in and out of vogue” depending on the media and regulatory focus at the time.

“I think if we were to redo this survey in 12 months’ time I think we would see different answers," he continued.

“So I think having a governance structure that means you consider as many of these as possible over time means that you can sort of pick them up when needed."

Adding to this, Isio partner, Emma Hudson, pointed out that some risks are harder to quantify and have a conversation around, such as a cyber attacks, suggesting the need for trustees to make time to discus these risks, while understanding that there may not always be a numerical answer.

More broadly, Hudson also said that there are broader governance lessons to be taken from the recent LDI issues, suggesting that pension schemes should be broadening out their governance conversations, and not focus just on LDI.

The panel highlighted a range of potential ways for pension trustees to look to address these areas of risk, including schedule a ‘blue sky’ thinking day, and asking LDI managers and advisers how they could help the scheme to manage a deflationary scenario.

Vidett director, Nadeem Ladha, also outlined three key areas that pension schemes should be looking to address, governance, structure and stress testing.

In particular, Ladha said that trustees should be ensuring that they have the right governance structure in place, including having the right people available to make the right decisions when needed.

Whilst Ladha acknowledged that this can seem straightforward, he warned that pension professionals could have “slightly too much faith” in some of the process and systems historically put in place, suggesting that schemes may want to test these systems during the summer holidays, for instance.

Adding to this, Hudson highlighted the LDI crisis as a "clear reminder" of the very real threat of “out of model” events – scenarios that are so unlikely that they aren’t captured in anyone’s models or projections for the future.

"We believe that it is worth schemes thinking about unlikely and extreme events that could throw them off course in the future," she continued.

“While we still expect schemes to use modelling to support journey planning and risk management, our view is that trustees and sponsors should at least have a discussion on “out of model” risks.

"For each scheme, the time available or appropriate to dedicate to this will vary. In any case, we would encourage schemes to invite their advisors and asset managers to talk about “what if” scenarios, including those that can’t be modelled easily.

“Schemes may also want to consider what events would have the biggest impact on their sponsor and the pensions and insurance industries, as this could inform their decisions both on which risks to discuss in more detail and whether they should try to hedge any risks.

"On a more positive note, they should also consider which events might present an opportunity, so that they can set up their governance model to be ready to capitalise on positive news, as well as being well placed to mitigate stressed scenarios.”

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