How to review your pension scheme strategy

Mar 5, 2020

As we have said many times before,

(see November 2019 Pension Trustees – The importance of creating a Journey Plan and Pension scheme funding – start planning

the best strategy a pension plan can have is a collaborative relationship between the sponsor and the Trustees of the scheme. Whilst it is quite possible that each has their own specific objectives and requirements, working collaboratively usually results in a win-win for both the sponsor and pension scheme.

Technology has moved on since we first became trustees and many actuarial consulting firms have software which will enable their clients to monitor the pension scheme funding position on a daily basis. Whilst there are occasions when daily reviewing the scheme funding position is needed, more often it is useful to identify trends and if pre-agreed funding triggers are close to being reached. Consequently, for us, having both the sponsor and the trustees being able to access the monitoring of scheme funding is important and should be seen as a positive development.

We live in a world of change, whether it’s falling stock markets reacting to global viruses such as Ebola or COVID-19, the implementation of Artificial Intelligence or the B word to name but a few, the point here is that pension scheme sponsors are under an ever-growing burden of potential risks.  The same goes for pension trustees and it’s only going to get worse.

It seems to us, therefore, that trustees and employers need to agree a formal pensions strategy since the external pressures on sponsors and from The Pensions Regulator are only ever increasing.

For trustees now require that the pension scheme has a long-term target and, as importantly, a plan as to how to actually get there. In the past, there may have been some woolly chat around future investment returns but now there is a requirement to have a much more robust plan and one which can withstand challenge if needed. The penalties for not having such a plan are significant and the costs involved in correcting the position dwarf the cost of doing it right the first time.

For us then, having discussions with the scheme sponsor about what the potential endgame for the pension scheme looks like, whether this is a buyout (most likely), self-sufficiency (continuing to run the pension scheme and be subject to the ever increasing governance costs) or the new kid on the block, transferring of the new superfunds, need to be held and agreement reached. This is because the journey plan for each of these three solutions is very different and changing horses (mixing my metaphors here) is both time-consuming and expensive.

Developing a joint strategy which takes into account the sponsor’s ability to support the pension scheme in good times and in bad, having a realistic time-frame to reach your chosen endgame position and ensuring that unnecessary risks are not being taken along the journey, seems like the most important thing for trustees and sponsors to agree at this time.

The regular monitoring of the pension scheme funding position comes into its own here by enabling both the trustees and sponsor to see when things are on track and, as importantly, starting to move away from the predicted position. Having a contingency plan in place in such situations becomes essential if only because formulating policy on the hoof rarely results in ideal solutions for the sponsor, the trustee or the members.

This is a huge topic and we could say a lot more about this but if we have struck a chord with anything here please do contact us for an informal conversation.


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