As the Board considers employee loyalty, wage inflation and its ESG ethos, adopt a C-Suite Pensions Strategy to:

• Run on long term
• Introduce modernised tier for today’s employees
• Recycle surplus cash to benefit current and past employees
• Align investment strategy for scheme funds with sponsor’s publicly stated ESG objectives.  Make impact and place-based investment a growing feature

The impact can be transformational.  Better direction of resources brings great positive impacts at less cost.  Embrace the Collective Wealth Fund.

Steps to implement

• Agree an Integrated Risk Management plan with the trustees with new Trust Deed and Rules introducing a new (Collective) Defined Contribution tier.  It sets out when excess cash can be allocated on a discretionary basis to the pensions of former and current employees.  Deal with inflation’s impact on pension values.
• Agree a FiduciaryPlus contract.  It sets a long term, low risk, fixed income led asset management framework.  It matches the real cash payments against a good quality member database.  It contains a guaranteed sum from a third party financial institution covering the remote risk of the sponsor’s failure.
• Update Statements of Investments and Funding Principles to incorporate sponsor ESG commitments and member preferences.
• Update employment terms.  Pension provision can again be a key feature for HR in staff recruitment and retention.  A competitive advantage in a changed employment environment.
• Reassess the Governance.  The sponsor’s nominees have a key role in a policy reset away from annuitisation as the “endgame”.  They can demonstrate that long termism works for all stakeholders.

Boards can replace the DB pension “get rid” mindset with a forward looking “run on” policy which works for sponsors, pensioners, employees and shareholders.  
An ESG Flagship benefits all stakeholders.

Backdrop
Life expectancy assumptions are coming down further in actuarial tables.  Liabilities will fall by around 3% to 5% for most DB schemes.  Current annual payments to pensioners represent typically around 3% to 5% of assets after recent falls in value (and greater falls in liabilities for the better financially managed).
Trustees and sponsoring employers can decide to distribute additionally benefits to past and present employees in response to changed information.  This is a straight improvement to the scheme’s finances.  The assets are not affected by the assumption changes – as happened when interest rates increased.
Standard industry thinking is to accelerate Risk Transfer Transactions.  Analysis of the real risks and values is needed.

Proposal

The benefit of discretionary payments can be split.  Increased payments can be made directly to past and present employees.  These comply with tax and legislative requirements.  C-Suite has worked through the detailed requirements.  Sponsoring companies can also benefit from reduced contributions.
The principle of discretionary payments is established.  The time over which they are made and the delivery mechanisms are then scheme specific.  

Campaign Objectives
The objective is to help past and present employees in the tough current economic circumstances.  The over funding of pension liabilities makes this practical.  Sponsors and trustees may then see their pension schemes as Flagship ESG policies not a legacy problem.  That results in having a long term investment strategy for the scheme and having a modernised tier within it.
Pension scheme members and current employees can put the case to sponsors and trustees for “one less one more”
HR as well as finance teams of corporates should take up the opportunity.  Member nominated trustees are particularly relevant.  Here is a break point where intergenerational unfairness is on the agenda and there is an action plan.