For CFOs, pension schemes now present many more opportunities than threats
Since forever, pensions have seemingly been in the news, or, for that matter, a CFO’s in-tray. This may not have been in a good way, with burdensome regulation alongside a challenging economic backdrop. Pensions became eye-wateringly expensive, and quite risky to provide. Legal and reporting obligations just keep growing, some of it of Byzantine complexity, cost upon cost.
So for a CFO, where are the opportunities?
1. On average, defined benefit schemes have never had it so good. But there’s still plenty to think about, and in a good way. Schemes can choose to settle (‘buy-out’), to run on (‘low dependency’), or in some cases to create surplus. Surplus could then be used to (say) fund other schemes – such as another scheme in the group, or sharing the proceeds with the company. After all, for many years, companies bore the risk. At the next actuarial valuation, trustees should be asking for less in contributions. On governance, were seeing smaller schemes avail of a simpler trustee model, where a Corporate Sole Trustee (usually a professional firm) takes on a streamlined trusteeship role. Decisions are made dynamically, by pension experts, where the sole trustee is appointed by the Company. All these opportunities have their merits and idiosyncrasies, but this feels like a better ‘menu’ than we’ve seen for years.
2. Aggregation in defined contribution schemes is accelerating. Small schemes face an onslaught of regulation designed to ‘nudge’ them towards Master Trusts and the like. This should be in your employee’s interests. Because it presses on cost whilst increasing choice and range of opportunity, and at key stages in an employee’s career. It should simplify corporate resource deployed in pension provision. We’re not talking abdication, but lower overhead because much regulatory ‘noise’ goes away. There’s also much talk of illiquid investments but the real action is ‘at retirement’ where providers are scrambling to provide credible, simple solutions for what is a very complex personal decision. Not necessarily a CFO worry but you’ll want to make sure retirees are properly looked after and guided, and company reputation managed.
3. Lastly, on people. A lot of in-house pension teams are unsettled, whether Admin, Secretarial or Investment, because they perceive their roles to be under threat. And they’d be right. Pensions involves lots of money having been built up, staff churn in a company’s pension team represents a financial and reputational exposure. This transmits through leaving risk on the table, or the opportunity cost, for example, of missing attractive buy-out pricing or terms for buying and selling assets. Consequently, outsourcing is gathering pace, in some cases the in-house team transferring as part of the arrangement. This keeps the scheme link and offers concerned colleagues a career opportunity, so a win-win.
Whilst a simplified view of a complicated market, these opportunities are very real.
LawDeb provides Trusteeship services, and through our Pegasus team, an outsourced pension executive resource. This can be on a fully outsourced, modular, or project basis. Capturing opportunities like this does take a bit of thought – especially if working alongside your existing team. Our value add is to make things happen, bringing advisers and so on together, and controlling costs. But the financial benefits of action could be significant, and possibly transformational, so likely worth a discussion.
