The C-Suite Pension Strategies Webinar: Derisk the Covenant: Revamp the Investment Strategy, highlighted the enthusiasm amongst insurers, banks, asset managers and actuaries for the idea. It meets both corporate and trustee agendas.
It can bring The Pension Regulator's idea of Integrated Risk Management to life.
The financial opportunities for corporates and for trustees to manage risk are too big to ignore. C-Suite can assist.
Visit https://secure.kinura.com/c-suite/ to view the webinar.
Contact us to bring together the relevant parties.
Finance teams or corporates with DB pension schemes mostly treat pension funding as a chronic, unfortunate legacy issue – too costly to resolve. Government and its Regulators, concerned about corporate failures, have ramped up their expectations and want funding plans spelt out. Sanctions and interventions are to increase.
C-Suite Pension Strategies has a solution that plays to the forehand of corporates and their treasury teams. Offer fall-back, third-party guarantees using the corporates’ existing funding capacity with its commercial banks and insurers. Guarantees cover the gap to an agreed level at which the scheme is self-standing financially. The guarantees are in place until that funding level is achieved. The annual cost can be modest and nothing like the costs of doing nothing, which can literally be penal.
In exchange, what you want is a sound, long-term investment strategy which assumes, given the guarantees, that the trustees deliver at gilts plus, say, 2% return for the foreseeable future – not rapidly derisking to self-sufficiency type returns by the end of current recovery plans. Factor these numbers into an actuarial model and see everything in a different light. There is a genuine solution which helps all stakeholders. So why is such a trade-off not discussed? Actuaries and commercial bankers don’t bother to meet up much. Investment consultants and surety providers plough their own furrows. Finance teams know them all -what a great chance to get them together and provide more rounded solutions.
Scheme assets £1 billion
Self-sufficiency £1.2 billion
Annual cost of guarantees: £200 million @ 75 basis points £1.5 million
Added return on assets held: £1 billion @ 1.5% £15 million
Self-sufficiency achieved (excluding any corporate cash contributions) 13 years
The current agreements and the particular features of individual schemes and corporates all need to be factored in. There are, however, few opportunities for finance directors and treasurers to have such a clear impact for good, as is available here.
Visit https://secure.kinura.com/c-suite/ to see the C-Suite solution explained
Silos are a feature of the pension industry. Sometimes wider perspectives are appropriate. One such connection that could be made is between insurance backing for corporate pension obligations (to make a scheme financially self-standing) and the scheme’s investment strategy. This is provided in exchange for less derisking.
A targeted return which reflects the strength of the covenant and does not try to shadow insurers’ asset allocation will add over 1% to returns. The annual benefit will be far higher than the costs of providing the surety-esque back-up.
Corporates can acknowledge there is a new, tougher pensions regime with teeth and the expectation on all parties is higher. Reputational risk and corporate governance both suggest decisive action is appropriate. The scheme’s target is to make itself self-sufficient.
Derisking is a “good” which in excess becomes a problem. A journey plan can be flawed if you can’t get home under your own steam.
When the concerns of trustees have been addressed, corporates can then expect to work to minimise the cash required from the sponsor. They have a fall-back if the corporate itself falters. It adds more time and helps all parties achieve better results. There is value in a new pension perspective.
The case was summarised in our recent webinar, which can be viewed at https://secure.kinura.com/c-suite/
WEBINAR TUESDAY 13th NOVEMBER 2018 at 15:00
A BETTER DB PENSION FUNDING SOLUTION
Derisk the covenant: Revamp the investment strategy
Recent Government policies reset corporate governance, reputational risk, financing and accounting questions on pension funding.
Our webinar explains what has happened and what corporates now need to do. We have gathered thoughts from leading participants in the field and there is a good solution. The key theme is linking investment returns to third party guarantee of sponsors’ contribution obligations. Insurers, banks and investment managers are enthusiastic.
Hear the corporate executive; actuarial; investment manager and insurer perspectives.
Move before you're pushed. Plan decisive action on pension funding
Speaking will be: William McGrath, Roger Higgins, Mark Hardinge, TC Jefferson
Join the webinar at https://secure.kinura.com/c-suite/