Pension Funding: The C-Suite Solution

Derisk the Covenant: Revamp the Investment Strategy

​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.  
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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.  

Illustration
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