Increasingly, the funding negotiation with your pension scheme’s trustees is one of the most complex transactions which your company has to tackle. The challenge is to ensure that the scheme is appropriately funded, but in the way that best balances the opportunities and risks that the company is facing. That’s easier said than done!
When appointing your corporate adviser, you need to make sure that the individual’s breadth of experience and commercial acumen puts him or her at least on a par with the trustees’ scheme actuary, who is usually very senior.
At bac our team has many years of experience of supporting both trustee and company boards through valuation negotiations. This means that not only can we help you develop a robust negotiation strategy but we can also give you real insight into how to get the deal done.
The key to a successful valuation outcome is planning and preparation in advance of the results being known, so you can approach the negotiation on the front foot.
A multinational employer wanted to manage the pace of funding to its large UK pension scheme (around £6 billion of liabilities on a buyout basis). The company had an excellent working relationship with the trustees. However, the trustees did have strong powers and the Pensions Regulator expected the trustees to take a firm stance on affordability and dividend policy.
The trustees’ opening position was a short recovery period to fund the scheme’s technical provisions. Instead, we worked with the company to develop a low risk secondary funding target to be funded over a timeframe reflecting the cashflow profile of the scheme. In conjunction with a long term investment de-risking strategy, this has resulted in much more stable long term contribution levels and is in line with emerging guidance from the Pensions Regulator.
As part of the long term funding structure, a dividend framework was agreed based on key company and scheme funding metrics. This allows the company to plan its dividend policy with confidence that it will not run into problems with the trustees.
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In this Pensions Perspective, Andrew Udale-Smith looks first at the different types of adviser review and when and how they might best be used. Then he focuses on how to design a smooth and efficient process for a full market tender.