A C-Suite Opportunity to Back Pension Provision for Today’s Employees
Many pension schemes show an accounting surplus (IAS 19). Yet they are still paying cash to fund actuarial deficits and, with the new Funding Code, cash will be required to fund to self-sufficiency. Do you have a choice? Yes. Use the company balance sheet. Put in place insurance around the covenant. A sustainable, long-term asset return can be used. Then in time a surplus arises. Use it to fund DC contributions for today’s employees. All stakeholders benefit.
Reflect on the actual cash flow dynamics of the scheme. To have a surplus in many pension schemes, all that is needed is to stick with a low risk investment strategy and wait. Over time the scheme runs-off so the prudence in the actuarial demographical assumptions frees up (fewer were married; life expectancy improvements were not quite so big). Prudence may add over 10% to actuarial liabilities. Actuaries should explain under professional rules TAS 300 how much is involved – but rarely do so.
Investment outperformance: It’s hard not to return gilts plus 1.75% with a fixed income portfolio matching well set cashflows. The leading fixed income investment managers expect to deliver it.
The C-Suite can add that message to its S172 Statement in the Report and Accounts that inter-generational unfairness is on the agenda.