Government has written to tell the CEOs of The Pensions Regulator and Financial Conduct Authority to “encourage alternatives to derisking and buyout”. C-Suite’s theme that “Run On Pays Off for all stakeholders” aligns with public policy.
Jeremy Hunt, the Chancellor of the Exchequer and Mel Stride, Secretary of State for Work and Pensions, write in their letters that:
In September C-Suite Pension Strategies wrote to DWP in the Call for Evidence on DB pensions and stated that one sentence from Government would be transformational for the allocation to productive assets and pension provision for past and present employees : “The Government encourage sound sponsors and trustees of well financed DB schemes to run on and modernise them to be ESG Flagships in all stakeholders’ interests.” C-Suite has worked on run on ideas for 5 years and knows how to implement them within existing regulatory and legal frameworks. The action Government wants can start now. Commenting on the Autumn Statement and related letters, C-Suite’s CEO William McGrath said “’Derisk and get rid asap’ now runs against public policy for strong DB scheme sponsors. ‘Run On 4 Good’ replaces the endgame.” Contact us and our leading partners can help you respond positively to the Government’s initiative. The letter to Nausicaa Delfas, Chief Executive of The Pensions Regulator is shown below. The same letter was sent to Nikhil Rathi, Chief Executive of the Financial Conduct Authority. The letters add to paragraph 4.34 in the Autumn Statement on investment in productive assets and the sharing surpluses and tax reductions. 4.34 To increase opportunities for defined benefit schemes to invest in productive finance while fully protecting member benefits, the government will consult this winter on how the Pension Protection Fund can act as a consolidator for schemes unattractive to commercial providers and whether changes to rules around when surpluses can be repaid, including new mechanisms to protect members, could incentivise investment by well-funded schemes in assets with higher returns. The authorised surplus repayment charge will also be reduced from 35% to 25% from 6 April 2024. “Run on pays off” for Defined Benefit schemes with a stable, long term investment strategy: Provide third party, risk diversifying guarantees: All stakeholders can share the benefits and surpluses.
These are the C-Suite themes which go right back to our 2018 webinar setting out a radically different mindset to improve pension provision. Our cutting edge analysis in our paper from 2020, “Running On Pays Off”, showed why an alternative to the rush to “get rid” to a life insurer was needed. The themes are now seen in our “Run On 4 Good” advocacy of aligning corporate and pension scheme ESG thinking. To go mainstream and transform pension provision we urged Government to state that it encourages well funded schemes with strong sponsors to align with its pro-investment thinking. One sentence can be transformational, we noted in responding to the recent DWP Call for Evidence: “The Government encourage sound sponsors and trustees of well funded DB schemes to run on and modernise them to be ESG Flagships in all stakeholders’ interests.” Now Jeremy Hunt has provided an equivalent sentence in his Autumn Statement. Our proposals work within the existing regulatory framework which means you can move forward now rather than wait for legislation. 4.34 To increase opportunities for defined benefit schemes to invest in productive finance while fully protecting member benefits, the government will consult on whether changes to rules around when surpluses can be repaid, including new mechanisms to protect members, could incentivise investment by well-funded schemes in assets with higher returns. The authorised surplus repayment charge will also be reduced from 35% to 25% from 6 April 2024. Should you wish to see how your DB scheme becomes and ESG Flagship we would be pleased to discuss – in particular Discretionary Step Ups and the FM+ approach developed with Van Lanschot Kempen. “Boards and their corporate head office teams should embrace the DB pension scheme opportunities the Chancellor’s initiative provides. All stakeholders benefit.” William McGrath William McGrath Chief Executive, C-Suite Pension Strategies T: 07768 607204 E: w.mcgrath@c-suiteps.com TC Jefferson Chief Executive The Plenum Group & C-Suite Partner T: 07581 466620 E: tc.jefferson@c-suiteps.com A revival of UK Stock Markets as a whole can be given a major boost by greater corporate engagement with legacy pension schemes. Many are international groups not listed in London. Pension liabilities are primarily UK and can be matched by UK based investments.
There is far greater flexibility in pension laws and regulation than actuarial practice suggests. What is needed is for companies and the sector to have prompts to take action. If stockbroker research raised some questions of Chairs and CEO as well as CFO, and asset managers where more involved on the subject, there could be rapid change in mindset. There is a trigger. Corporates’ statements on ESG are unsustainably distanced from the “get rid ASAP” position of their pension schemes plans structured into trustees Statements of Investment Principles. Boards need to engage with the trustees and be supported by Government and investors to say they want to run the scheme on long term as an ESG Flagship in all stakeholders’ interests. This is in preference to a sale to a life insurer. The consequences of the engagement process are:
Research analysts and institutional investors have been far too passive. A consequence has been what started as sensible derisking strategies has been over applied. The Risk Transfer Industry – combining actuaries and life insurers – has been allowed remarkable latitude. Greater Boardroom and HM Treasury engagement can provide the required corrective. With fewer sellers and long-term money being directed to (C)DC pensions and with trustee and Board aligned there can be much better prospects for market. The pension funding overhang is removed: An expectation of more money being behind pensions for current employees raises the hopes of return seeking asset managers. The mindset is not managing decline, but of expecting growth. In changed circumstances all stakeholders should look to rethink High sponsor cash contributions have been the staple diet of DB schemes. Now, higher interest and mortality rates have actually left schemes increasingly well-funded. The benefits should not be syphoned off by life insurers. Sponsors and employees past and present have a mutual self-interest in running on and for a pension reset. Get stuck in. No need to wait around for regulatory battles. Action now. Current employees can be the trigger for change. DC pension provision is not a patch on old DB pensions. But what was shut on one basis can be reopened on another. Excess cash in legacy DB schemes can fund a new DC tier. With discretionary powers exercised by trustees, pensioners can have temporary uplifts while funds are added to DC pots. Fair to all stakeholders. The sponsor needs to enable trustees to have long term but low risk investment plans (able to dial up productive, ESG aligned asset allocations as funding strengthens). Then they can agree (ahead of surplus returns) scheme money is used to fund pensions and add to them for the current and past employees (including the company contributions). The plan follows the original purpose of the trust. So better cash and profits for the sponsor and better off employees. With increased contributions into their pots, DC members can reassess what they want to pay. Sponsors and employees have left the pension sector to its own devices for too long. Now employees should revolt to start a pensions rethink. DB schemes become ESG Flagships able to benefit all stakeholders. Ask about C-Suite and its partners about how. “Current employees like institutional investors have been strangely passive during the DB derisking years. Some activism is called for to set a long term run on strategy. ESG aligned trustees and sponsors are ready to join in.” William McGrath Questions for Current and Former Employees on the Final Salary Scheme Surplus The current employees ask Head Office
The former employees ask Head Office
Both current and former employees can ask employers and trustees
Current DC Employees to Ask Directors and Trustees about DB Schemes Follow up questions:
Message to sponsors: Don’t let past bad governance experiences; tough regulator discussions; admin and time requirements; and one time accounts and contribution volatility set the agenda. Move on. There are new, addressable opportunities. Is it time for employees past and present to revolt to start a pensions rethink? |
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