ADVERTORIAL | Mercer UK
That said, trustee boards oſten push for de-risking regardless of the scheme and sponsor situation, but it is not always the right course action. For instance, if the scheme has a high proportion of young savers, it would be very costly to pursue de-risking exercises at this stage, and it is likely to be more economical to wait until the population matures. Related to this I also believe “false
confidence” exists about the true extent of the de-risking that can take place. Some schemes think they have fully hedged their risk by pursuing liability-driven investment (LDI). However, liabilities are not crystallised until they are paid out in cash. Actuarial calculations rely on modelling an intricate set of assumptions about an unpredictable future. For example, inflation hedging can only ever be based on assumptions, due to the complexity and variations of different types of pension increase in any scheme. For any sponsors fortunate enough to have
a well-hedged scheme, the focus should shiſt away from finding that final 1 or 2 percent but toward frequent updating and monitoring. Hedges need constant maintenance to ensure they accurately reflect the estimation of future cash flows. Frequent data updates become more important, as well as understanding the limitations in the models being used. Technology is key in enabling us to do this effectively with our clients and it’s a change in mind-set from just looking at liabilities once every three years.
the governance structure around it. Pension scheme governance can be sluggish, with decision making oſten happening over multiple meetings, occurring infrequently. Given the increasing complexity of investments and risk management techniques,
important decisions can
sometimes take up to a year to make. In a fast-paced world, this rarely leads to the best outcomes. Fiduciary management is one
increasingly popular route for time-pushed scheme sponsors and trustee boards. It is also oſten helpful where sponsors feel they do not have the right skillset on a trustee board to make informed investment decisions in the timeframes needed to capitalise
on opportunities. Fiduciary
management allows the scheme sponsor and trustees to retain responsibility for setting the scheme’s overall strategy and direction, while delegating the everyday decision-making to experts.
Can risk ever be eliminated from a pension scheme? It is certainly possible to remove a great deal of risk from a DB pension scheme without transferring the scheme to an insurer.
How has the pensions consultancy industry developed over the last ten years? Is it missing any tricks? Smartphones and online shopping may have taken over the world, and as de-risking continues, a variety of tools are evolving to help pension schemes along the journey. The pensions industry as a whole is making up for lost time and seeking to use technology in new and innovating ways, which are continuously changing the way we work with clients. Technology
can also help to bring
together buyers and sellers of bulk annuities. The Mercer Pension Risk Exchange® is an online marketplace which facilitates DB buy-ins and buyouts. Scheme sponsors benefit from access to pricing direct from insurers – including receiving exclusive bids from insurers – and regular updates on the progress
the scheme is making towards
meeting its funding objectives. Pressure on fees means routine actuarial
services must be carried out more efficiently than ever before, and corporate advisors need to deliver more value by helping to define strategy and support clients’ approach with the use of big data.
DOFONLINE.COM DIRECTOR OF FINANCE 19
More broadly,
savers’
experiences of
pensions can also be transformed through technology. Retirees must make difficult decisions about whether they should keep their DB pension scheme or transfer it to defined contribution to access greater flexibilities, for example. Robo-advice is popular in the United States and is growing in popularity and sophistication in the UK but remains under-used in the institutional market.
In a fast-changing environment, what is Mercer doing to stand out from the crowd? To propel schemes towards meeting their objectives, clients need access to the best quality holistic strategic input. Around 18 months ago, we decided to integrate our actuarial, investment and covenant practice areas. The move improves collaboration between consultants
and gives clients
access to a breadth of services that no other consultancy can match. Investing heavily in technology and innovation is also critical to helping our clients in the best ways possible. We are also mindful of how the pensions
world is changing. As companies move from DB to DC, they are focusing on how pensions fit in as part of a wider compensation and reward framework/structure. We have a significant DC team that is focused not only on providing investment and communications advice to trustees and sponsors but also consulting on wider financial wellbeing.
Mercer delivers advice and technology-
driven solutions that help organisations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 23,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With nearly 65,000 colleagues and annual through
revenue over $14 billion, its market-leading
companies
including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment.
For further information, please contact your local Mercer office or visit our website:
www.uk.mercer.com
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