Corporates' New Pension Funding Dilemmas. Problem. Solution. Action

The Problem Statement
Pension funding is bringing new reputational, governance, finance and accounting problems to Boardrooms.  The Pension Schemes Act 2020 sets a tough regulatory framework.

The mix of low interest rates and the derisking of investment returns is recognised as causing issues.  Now, the funding targets set for schemes under The Pensions Regulator’s (TPR) new Funding Code are to move to self-sufficiency and buyout.  Unless asset returns deliver the extra money, corporates will be paying considerably more in cash than their accounts currently suggest or actuarial deficits have been suggesting.

Further, the “Stronger Pensions Regulator” can cut across corporates’ dividends, leverage and transaction plans.  The powers are backed with reprimands, fines and criminal sanctions.  But it also has a statutory obligation to support sustainable growth.  It is now open to new initiatives and guarantees in bespoke solutions. 
 
The Solution
Corporates can respond positively to the challenges posed and move decisively to a defensible position. 

Provide:

• Third-party, risk-diversifying insurance carved out of the sponsor’s financial capacity.  If it is not maintained the amount becomes payable before the insurance can lapse.  Covering the gap between assets held today and self-sufficiency means the scheme cannot fall into the Pension Protection Fund.

In exchange for:

• An agreed investment strategy that can generate returns to cover the funding gap over time without recourse to the corporate for high cash contributions.
• An agreed framework for actuarial liability calculations as part of an agreed Integrated Risk Management exercise which makes prudence levels more transparent.

The benefit of the higher returns is much greater than the cost of the insurance.

• Agreement that surpluses beyond the new targets can be repurposed to fund Defined Contribution benefits of today’s employees.

 
The Action Plan
C-Suite Pension Strategies has the ideas and the actuarial and insurance sector contacts to make implementation possible

The Government and TPR want action.  Corporates can respond and all stakeholders’ benefit.
 
Contact
C-Suite Pension Strategies has an established network of senior executives from across the corporate and actuarial space – most particularly in banking and insurance.

William McGrath, Founder of C-Suite Pension Strategies, ex CEO of Aga Rangemaster w.mcgrath@c-suiteps.com