Make the Strength of the Parent Count

Many parents like to leave their UK subsidiaries to deal alone with UK pension funding.  Is this sensible?  Far too often the strength of the parent is ignored.  The cash cost can then be very high and the financial strategy established can fail to address the long-term interests of all stakeholders effectively.  

The call is for parents to get engaged.  Make a direct assessment of how the parent is or could be taken into account.  Remember that The Pensions Regulator statistics show that the sponsor’s covenant makes virtually no different to actuarial calculations.  Yet the pensions industry itself thinks it should and its open to you to ensure that it does.

UK operations can address how to play in the parent to best effect.  A complete guarantee of obligations is not necessary.  But having guarantee with maxima that cover:

• Payments required of the subsidiary
• Solvency of the subsidiary

should change the game.

Then as part of the deal look at:

• The investment return assumed by the scheme – higher for longer
• More onus in recovery plans on investment returns not cash
• No commitment to a secondary funding objective to go beyond the statutory requirement to eliminate a deficit

New actuarial disclosures make it clear how much you are paying in cash for your actuary’s prudence.  But is it necessary?  Is the only answer to derisk until annuities are bought?  What happens if the scheme ends up over-funded?  What about better pensions for today’s employees?

So many international businesses can benefit from asking the right questions and producing better answers for all. C-Suite can help you get stuck in.