Articles - The confidence gap between sponsors and schemes

Our report, Ready or Not, highlighted concerns around the relationships between trustees, sponsors and advisors. The smooth running of DB pension schemes relies on relationships, but as our new report, Ready Or Not discovers, there is a worrying confidence gap concerning the relationship between sponsors and schemes.

 By Paul Houghton FIA, Partner and Head of Actuarial Consulting and Debra Logan FIA, Partner from Barnett Waddingham

 When asked to rate their confidence that the working relationship between the scheme and the sponsor is aligned and collaborative, trustee responses were mixed – nearly a third (31%) lack confidence in the relationship. This rises to 44% for smaller schemes with under £500 million in assets.

 Turning up the heat
 Sponsors are under significant pressure to support their schemes, and trustees are under increasing pressure from a pensions regulator that rightly demands high standards.

 The demands placed upon both groups of stakeholders offers plenty of potential for friction or misunderstanding. But any distance in this relationship could have serious repercussions for the smooth running of a scheme. This is particularly true during times of crisis, when big decisions may need to be made quickly.

 Not so trusted advisers?
 The report also found that confidence in professional advisers was low. Only 58% of trustees surveyed said they were confident in their advisers, with the rest only somewhat confident.

 These professionals – often referred to as trusted advisors – are an integral component of any scheme. They often act as a bridge between the sponsor and the trustees. Their professionalism and independence can be particularly useful during difficult times or when momentous decisions need to be made.

 Time for change
 Schemes rarely change advisers and change actuaries even less frequently. Yet, in our 2018 report, Navigating Change, we found low levels of confidence in actuarial consultants. At that time, more than two thirds (70%) had changed or were considering a change.

 Our findings in the Ready or Not study suggest that this key relationship is still under strain. Only 51% of trustees showed confidence in the skills of their actuarial adviser to support them through the next stage of their scheme’s development. Investment advisers fared little better, scoring 58%.

 In almost one third (28%) of responses, advisers were cited as the greatest obstacle to the scheme’s decision-making progress. In almost one third (28%) of responses, advisers were cited as the greatest obstacle to the scheme’s decision-making progress. Navigating Change had also indicated this key relationship being placed under great strain. That report indicated almost four in 10 (38%) schemes felt their actuary’s greatest failing was for showing a lack of independence or free thinking.

 Rebuilding relationships
 As we explore in the full report, we believe the ideal relationship is a collaboration of equals working in partnership to achieve a scheme’s objectives. The relationship with the sponsor is not only important but mission critical - where there is division, heaven and earth should be moved to repair any damage, and genuinely trusted advisers can play a critical role in this.

 A close working relationship with the sponsor builds mutual trust and respect through cooperation and collaboration. The opposite leads to frustration and fallout. This is corrosive and wasteful, but ultimately does nothing to serve the key stakeholders: the members. 

 Report Ready or Not

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