Our Flagship ESG Policy
Repurpose the DB Pension Scheme to Benefit All Stakeholders
A Proposal to embrace the role as long term sponsor and ensure scheme supports Group’s S172 Statements and ESG Commitments.
A Proposal to embrace the role as long term sponsor and ensure scheme supports Group’s S172 Statements and ESG Commitments.
As the Board considers employee loyalty, wage inflation and its ESG ethos, adopt a C-Suite Pensions Strategy to:
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 Investment 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.
Take a new look at DB pensions.
- 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
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 Investment 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.
Take a new look at DB pensions.
Take a New Look at DB Pensions as ESG Flagships with the C-Suite Team
Look Up |
Agreed added discretionary, self limiting pension payments for past and present employees. Scheme to cover costs currently paid by sponsor Have Scheme Rules permitting surpluses to be used to fund new (C)DC scheme tier and raise pensions in a manageable way. Have framework in place for return of surpluses to sponsor over time. |
Look Down |
Assess the growing proportion of liabilities covered by PPF as part of updated risk assessments by the Integrated Risk Committee. Look to insurance markets to cover sponsor solvency risk and insure sponsor against further cash calls. |
Look Ahead |
Reset Statement of Investment Principles to embed long term stability not “death wish” endgame. Create ESG Flagships aligning trustee and sponsor attitudes. Have time to wait for prudence in life expectancy to true up. |
Look Around |
Governance check to ensure trustees have meaningful roles and IT / admin systems are fit for purpose. |
Look out in all directions for your pension scheme
One Less. One More
A Flagship ESG Initiative
A Flagship ESG Initiative
An Exercise in Discretion to Benefit All Stakeholders
Campaign for One Year Less on life expectancy to mean One More Years worth of pension related payments for past and present employees
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.
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.
Watch FD Carol Animations to see how running on benefits all
Get in touch to discuss a new direction for your DB pension scheme