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:

• Trustees set new +/- 10 year investment strategies to run on at a stable return target.
• Trustees may ask for third party, bank or insurer back up that the scheme will be or remain self-sufficient in 10 years’ time.
• Sponsors can set targets for the scheme to be fully self-funding (including costs) and to pay in due course current employees pension costs.  This can have material benefits to corporate performance.
• Investment portfolio can factor in growing Impact / Place-Based allocations as funding improves.
• Members can expect discretionary payments.

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

Current DC Employees to Ask Directors and Trustees about DB Schemes

Follow up questions:

• Do the Board see the DB pension scheme as integral to their public ESG commitments in financial statements and Sustainability Reports on the environment and about their employees?
• If the DB scheme runs on with no more investment derisking and mortality trends continue, will the scheme generate large surpluses over and above the Regulators idea of low dependency on the sponsor?
• Will the employer consider a new DC tier within the DB pension scheme?  (Shut for being too expensive on one basis, now open on a modernised, financially manageable basis)
• Will the employer prioritise better pensions for present and past employees over repayments of surpluses?  (Recognise the financial benefit to sponsors and employees if their contributions are funded by DB surpluses)
• Have directors and trustees considered discretionary payments for DB and DC scheme members?   Given the C-Suite Pension Strategies know how on exercising discretion will they let me know if they will reconsider them now?

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.