ADVERTORIAL
Flexibility the key for pension success
In the run up to the year-end it’s important to reassess the assumptions used to value liabilities I
ssue finance directors with a clean sheet of paper and they wouldn’t go anywhere near offering employees a defined benefit pension. That’s the view of Adam Poulson, head
of corporate consulting in the North at Barnett Waddingham as he surveys the challenges businesses face when offering pension schemes across the country, from start-ups to FTSE 100 companies. “It’s a demanding market at the moment,”
says Poulson, “especially with companies heading towards end of year reporting. It’s certainly the case that more and more companies are confronting the costs and risks posed by defined benefit schemes and switching to defined contribution.” Over this year, the liabilities of a typical pension scheme have increased in value by 25% while, over the same time period, the assets in which these pensions schemes invest have only gone up by, on average, 15%. Overall, the pensions industry has seen its schemes fall from 90% funded to 80% funded during 2016. The imbalance is clear to see and,
according to Poulson, it will be the companies who grab the nettle and take charge of their pension policy that succeed. “Companies who get on the front foot and address the liabilities in their schemes will be the ones who can control their pension risk and make their businesses more competitive. “In the run up to the year-end it’s
important for companies to reassess the assumptions used to value their pension liabilities. These are set by a company’s directors, and now is the time to get to grips with how these assumptions are set.” Poulson suggests how a company can help mitigate the expected increase in the value of its pension liabilities. “In the short term it’s about the assumptions used. Financial assumptions: reassess
50 DIRECTOR OF FINANCE
how the discount rate is set and also the predicted level of long-term inflation. Longevity assumptions: liability values can also be reduced if you re-examine your longevity assumptions ensuring companies take a best estimate view, as opposed to the prudent view favoured by pension scheme trustees. In the long term it’s about reducing the liabilities in the scheme. The increased amount of flexibility now in the market – switching from DB to DC pensions and even withdrawing pensions as cash – provides many more options for companies to reduce their pension liabilities. ” Barnett Waddingham is an independent partnership, working with companies across the UK. “We help start-ups meet their auto-enrolment obligations right up to providing detailed strategic advice to FTSE 100 companies,” explains Poulson. “Whoever we work with we put the client’s needs at the heart of our advice, working with them to meet their goals and objectives.” Over recent years, many companies have closed down their DB arrangements
to new entrants. In fact, only 2 FTSE 100 companies offer any sort of DB to new employees and this is a trend working its way down to smaller businesses. “Rising inflation expectations and low yields are increasing the cost of providing this type of benefit – costs are going through the roof,” says Poulson. “Essentially, companies need to reduce the liabilities within their pension schemes and the new flexibilities on offer can benefit both employees and employers.” Poulson ticks off three essentials when
it comes to companies taking charge of their pension agenda. ❶ Understand the level of risk being run by the pension scheme
❷ Influence the asset strategy of the scheme to manage risk
➌ Engage with the membership to explain the current pension flexibility and reduce the size of the liabilities Poulson concludes: “If companies can
take control of their pension schemes, they can reduce long term cost and volatility resulting in increased protection of their members’ benefits.”
dofonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52