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.
In the news this week, the long-awaited tax guidance on some GMP equalisation issues is published, BAE Systems agrees to contribute £1 billion to its main DB scheme and PACE completes a second buy-in.
Over the autumn of 2019, BAC conducted an extensive survey of the actions which companies are taking to manage their defined benefit (DB) and defined contribution (DC) pension arrangements.
2019 marked 50 years since Neil Armstrong walked on the moon and this was obviously on the Queen’s mind in her Christmas message as she talked about a bumpy year but one with small steps of progress as well. In terms of pensions, it also felt like a year of small steps and occasional bumps. In this quarter’s Arena, we take a positive look back at 2019, as well as looking forward to some expected pension developments over 2020.
Despite the very different circumstances facing individual companies, bac‘s autumn 2019 survey reveals a surprisingly consistent picture of the actions which companies are finding most attractive to manage their DB and DC pension arrangements.
As DB liabilities have become legacy issues to be managed, governance has become the umbrella term for a broad range of risk management tools. In this publication, we look at the DB governance solutions we have helped our clients to implement.