Pensions - Articles - DB pensions endgame threatened


A lack of understanding about ‘company beliefs’ and how they impact decision making around pensions schemes could endanger the success of DB endgame strategies claims Hymans Robertson. The leading pensions and financial services consultancy warns that as these beliefs shape company decisions it’s imperative for them to align with strategic pensions choices. It’s worried that this is being neglected and can lead to unnecessary and damaging misunderstanding between sponsors and trustees.

 Explaining the importance to pensions schemes that trustees are able to understand company beliefs, Leonard Bowman, Head of DB Endgame strategy, says: “’Company beliefs’ are strongly held views by senior company decision makers that, by definition, cannot be proven to be right or wrong but can profoundly influence company decision making. A company’s beliefs, for instance, on the value of taking investment risk in the pension scheme versus taking that risk somewhere else in the business would have a big impact on the strategic approach.

 “We were surprised to find in a poll we took at a recent webinar that only one in ten (12%) of respondents* felt that their current pension strategy fully reflected ‘company beliefs’.

 “This is a big concern because companies need to understand why they are making their strategic pension decisions. Trustees need to understand this as well, even if they don’t share the same beliefs. When current strategies do not fully reflect companies’ beliefs, in the future when key joint company and trustee decisions are required there may be disagreement and challenge that could have been avoided by a better articulation at the outset of everyone’s views.

 “This will only be compounded if the ongoing communication channels are not as effective as they could be, which is probably why we have also seen more than 8 in 10 (82%) of company respondents report that that they have encountered difficulties reaching consensus with their trustees on key issues.

 “As endgame planning gathers pace for corporates, the level of understanding about this could be the single most important factor that decides whether the endgame strategies deliver what companies want.”

 Commenting on the additional need for DB endgame strategies to embrace effective governance, Leonard continues: ”Effective company and trustee governance will be another important element in whether endgame strategies deliver what companies want. This can play a vital role in in delivering the chosen strategy and, in particular, ensuring there is regular and open dialogue between the company and the trustees, for example by the use of joint pension forums. Without this there is scope for misunderstanding and unnecessary disagreement between the company and trustees leading to inefficient strategic decisions, potentially leading to higher costs or worse member outcomes.”

 Leonard concludes: “Understanding ‘company beliefs’ and ensuring effective company/trustee communication are key issues if a company endgame strategy is to deliver. These kind of avoidable issues could lead to missed opportunities that disadvantage the company and scheme members”
  

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