According to Paul Houghton, partner and head of trustee consulting at Barnett Waddingham, the catalyst for the overhaul of consultant relationships has been the changing dynamics within the industry.
“The UK pension industry is experiencing a structural shift as defined benefit (DB) schemes reach mature status. As the number of pensioners increases, schemes’ cashflow is becoming restricted, often negative, and trustees need to start planning for their scheme’s end. This change is influencing the way trustees manage their schemes and has led many to seek a new type of actuarial consultant.”
Relationships under threat
The report states that looking for a new actuarial consultant is, historically, an ‘irregular occurrence’. Houghton explains: “Schemes have been slow to change their actuarial consultant – it is often the longest-established professional relationship – unless there has been a breakdown in the relationship or they consider the level of fees to be poor value for money.
“However, the research shows a high number of respondents (61%) are changing or have already changed their actuarial consultant recently or are considering a change now. A further 9% are likely to consider a change in the near future.”
A new direction
Houghton believes the dramatic re-evaluation of long-standing consultant relationships is down to a heavy focus on major structural change and realignment of strategy.
“Scheme maturity and a focus on the potential end game of risk reduction, leading towards buyout, a consolidator or running without risk, is a major driver to revaluating these relationships. Trustees and scheme managers now face the end game of securing benefits for their members and this can require a complete reconsideration of strategy.” he said.
This is underlined by the report which shows the majority (58%) of respondents are looking to increase their focus on their transition between LDI and the ultimate end game stage as a priority, while 26% are currently considering it.
“There is also evidence schemes feel their present incumbent may not have the necessary fit – a combination of approach, culture and skills but in particular, the ability to think freely and offer genuinely strategic advice – to rise to the challenges a scheme considering its end game strategy now faces. The days of a one-size-fits-all, product led approach are no longer applicable as shortened time horizons mean that schemes need to reflect their own unique circumstances” he added.
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