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What are companies
doing when it comes to their pension schemes?

Our viewpoint

Do you know what other companies are currently thinking about when it comes to their pension schemes? Are you up to date on the latest developments? Do you know what is next for your scheme?

If the answer to any of these questions is “no”, you’re not alone. In this blog I will share the key things that have been coming up for our corporate clients. 

I recently conducted a quick poll with my peers to find out more about what has been coming up (and, of course, this also sheds a light on what isn’t coming up). The top items were (perhaps unsurprisingly) triennial valuations and accounting exercises but on top of that we’ve seen a real uptick in companies revising wider journey plans and initiatives now they have settled into a new way of working (after a number of paused projects last year).   

Here are the top 3 things that are coming up right now, and my views on what might be next… 

1. Journey planning

We’ve seen an increase in activity in thinking about long-term targets and taking actions to move towards long-term goals including either buy-out or self-sufficiency. Recent good news has meant that for some where de-risking was a distant option it is now on the horizon; and corporates are often keen to be on the front foot.   

In a lot of cases a short discussion has highlighted that schemes really are closer to their end goal than they thought and now is the right time to think harder about what the ultimate goal is and communicate with the trustees. Doing that helps establish a framework so actions like paying contributions, making investment strategy changes or implementing contingent funding approaches can be considered in terms of moving the scheme towards the goal. 

  • Key takeaway: Understand where your scheme is, and where you want to get to. Make sure your scheme is ready to take opportunities whether that is in the investment strategy, using contingent funding approaches or within the insurance market.   

2. Liability management

A number of companies are looking to launch communications exercises (with advice) to members approaching retirement. This sort of exercise helps members understand their options and provides access to the necessary advice required for members to take action. These can be win-win exercises for as part of a longer-term strategy.  

Members gain from better understanding their benefits and in many cases can take them in a way that better matches their needs (either by retiring early or by taking a transfer value to provide flexibility). Sponsors benefit from risk and cost reduction – both from increased certainty as members draw benefits, and by settling liabilities without the need for additional prudence required for funding pension schemes if members do choose to transfer. 

When talking to financial advisers, we’re seeing diaries getting booked up with both one-off exercises and ongoing commitments to provide members with access to appropriate advice.  Some thoughts on this topic were covered in our joint blog with Eversheds on helping members make good choices. 

  • Key takeaway: Liability management exercises can be a win-win for companies and members, if they are done well. More companies are planning to run exercises or introduce access to advice and so it is important to factor in capacity if planning an exercise.  

3. Mergers and Acquisitions

We’ve seen a lot of clients looking at M&A opportunities and we’re expecting that to continue.  Where there are pension schemes involved it is really important to factor them in to discussions at an early stage to avoid issues further down the line. This is in third place as it doesn’t affect everyone but it is certainly something to be aware of. 

  • Key takeaway: If you’re looking at M&A with pensions involved make sure you get the advice you need early. Lots of transactions are happening on short timescales, so to make sure you’re not taken by surprise it is well worth engaging early to understand the impact of any plans on pensions (and consider any interaction with the Pension Schemes Act 2021). 

What’s not on the agenda but perhaps should be 

There were a few things that don’t seem to be on the corporate agenda this summer (despite having been hot topics over recent years). These included, RPI reform, superfunds and GMP equalisation. Perhaps this is less surprising as RPI reform has been discussed at length, we’re still waiting for the first superfund transactions and GMP equalisation is complex and often seen as a trustee problem. That said, there can be potential opportunities for sponsors in all of these areas and so they are definitely worth keeping on the agenda over the next 6 months.  

Understandably, a lot of my clients have been focused on keeping their businesses running in a challenging environment, so pensions has been an area that has had less attention of late. However, there has been a lot going on in the pensions world and now is a good time to make sure you, and your board, are clear on where pensions fits within your overall business plans. 

Accounting for Pensions 2021

Accounting for Pensions 2021

Thought leadership report

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