Better planning leads to better outcomes

As corporate sponsors and trustees involved with the running and management of pension schemes know, the past five years or so have been a challenge. It has been a period of increased proactivity for all those involved in pension schemes. Scheme closures have been a strong trend, along with initiatives to try and address deficits by more inventive means than simply paying cash, such as member options exercises. Yet despite this increased focus on deficit management, and a significant amount of cash being paid into schemes, many are not substantially better funded.

Over the same period, financial markets have consistently worked against schemes, their sponsors and trustees. In most cases, significant additional cash contributions and (latterly) strong growth asset performance, have been wiped out by increases in liability values resulting from historically unprecedented falls in gilt yields.

And this isn’t over. For many, the ride continues to be very bumpy. Just as things look as if they are starting to improve (eg as they are likely to have done for most schemes in late July), another financial market shock comes along and deficits increase again. Since July of this year, long-term annual yields have fallen by roughly 0.5% a year and equity markets fell over 8% in a week, damaging many schemes’ funding levels by over 10%.

Trustees and sponsors are therefore left feeling that, despite their best efforts, they are no better off than they were one or two valuation cycles ago. With schemes maturing and deficits refusing to go away, many are starting to feel they cannot afford for their scheme to get any further out of their control.

The question trustees and their schemes’ sponsors are still struggling with is “What can we do about this?” We believe that the answer is remarkably simple: have a clear strategic plan focused on achieving your objectives. A clear, well-formed plan not only gives you an understanding of where you are going, but also lets you assess opportunities that arise,  and understand what action should be taken if you start to fall behind. Crucially, such a plan must address risks as well as the deficit.

Sponsors and trustees with a clear strategic plan will have been aware of whether conditions in July presented an opportunity to take action towards their objectives or not. They will also have limited financial risks to acceptable levels, resulting in smaller losses than would otherwise have been incurred. They will also have a clear understanding of how any increases to their deficits will be repaired. Overall, sponsors and trustees with a clear strategic plan should have emerged from the last three months of market volatility in a better position than those with no plan.

However, while simple in concept, an effective plan is not easy to design and schemes and sponsors need support to agree one. PwC and Redington have earlier this year formed a strategic alliance with exactly that task in mind – by combining the strengths and experience of our organisations we believe that we are uniquely placed to help you help you devise a plan to regain control of your scheme once and for all.

We will be posting regular updates on this blog, explaining how we are helping sponsors and trustees. However if you would like to have a conversation about how we can help you, please get in touch.

Tom Neale

e: [email protected]

p: 0113 289 4805

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