Members Letters and Questions to Ask
Letter to Chair of Trustees
Dear Chair,
I am a member of the XXX pension scheme – now closed to new entrants and future accrual on cost grounds. I know that:
I appreciate that you will want to ensure costs to the sponsor; any risks to accrued benefits and current employee benefits are also considered. Given the strong ESG enthusiasm of the sponsor and many of the scheme members like myself look forward to hearing about the progress you have been able to make in considering the continuing and expanded use of discretions to benefit all stakeholders.
Under Technical Actuarial Standard 300 version 2 actuaries have to compare buyout strategies with run on. There will need to be a risk-benefit analysis. I should be grateful to understand your conclusions.
Letter to Chair of the Board
Dear Chair,
I have read with great interest about the progress of the Group and your personal commitment as well as that of the Board executive to the Group’s ESG strategies.
I am a member of the Group's pension scheme. With the strong support of the Group, recent market changes and with reduced life expectancies, it is now well funded. Fear of runaway costs that led to its closure to new members and accrual have receded.
I know the Government is enthusiastic for investment in “productive assets” by pension schemes and on alternatives to the bulk transfer of liabilities to the overheated life insurance market. Further, I realise that existing legislation and regulation already allows trustees and sponsors to agree on ways to utilise surpluses and that discretion will become still more straightforward to exercise following the current DWP consultation and subsequent legislation.
The surplus in the scheme would suggest that the case for buyout has collapsed when a risk-benefit analysis for members and sponsor is carried out.
Against that background I do hope that the Group is actively discussing a new pension investment and funding strategy to meet all stakeholders interests – something incoming regulations require.
The new agreement can plan to make discretionary payments now. The much reduced life expectancies already seen are a windfall gain for the scheme - just as inflation running well ahead of 5% maxima was a benefit to the scheme in real terms. Those factors apart of the interest rate increases should provide you with ample scope to make discretionary payments. Once a “run on” approach is adopted there is the time to ensure sustainable surpluses arise. The sponsor remains with, perhaps, backup guarantees in the unlikely event it fails or has to make additional contributions.
I have also written to the Chair of trustees making these points. I have great confidence you will together be able to produce a package which effectively addresses the needs of all stakeholders - past and present employees and the company as it develops its business further.
I see the pension scheme plan as a litmus test and an opportunity to highlight the real nature of the Group's ESG thinking.
Dear Chair,
I am a member of the XXX pension scheme – now closed to new entrants and future accrual on cost grounds. I know that:
- XXX Group is a strong, well financed business.
- The derisking steps taken by the trustees over many years and the sponsor’s cash contributions mean the scheme has a sound position.
- The latest financial information available on the scheme shows surpluses are arising on accounting and actuarial bases.
- Government is keen to see pension schemes run on and to invest in productive assets with a UK focus. So am I.
- Consultations are underway, instigated by HM Treasury / DWP, about how to make surplus funds available to assist past and present employees as well as the sponsor. Some actuarial consultants are becoming enthusiastic.
I appreciate that you will want to ensure costs to the sponsor; any risks to accrued benefits and current employee benefits are also considered. Given the strong ESG enthusiasm of the sponsor and many of the scheme members like myself look forward to hearing about the progress you have been able to make in considering the continuing and expanded use of discretions to benefit all stakeholders.
Under Technical Actuarial Standard 300 version 2 actuaries have to compare buyout strategies with run on. There will need to be a risk-benefit analysis. I should be grateful to understand your conclusions.
Letter to Chair of the Board
Dear Chair,
I have read with great interest about the progress of the Group and your personal commitment as well as that of the Board executive to the Group’s ESG strategies.
I am a member of the Group's pension scheme. With the strong support of the Group, recent market changes and with reduced life expectancies, it is now well funded. Fear of runaway costs that led to its closure to new members and accrual have receded.
I know the Government is enthusiastic for investment in “productive assets” by pension schemes and on alternatives to the bulk transfer of liabilities to the overheated life insurance market. Further, I realise that existing legislation and regulation already allows trustees and sponsors to agree on ways to utilise surpluses and that discretion will become still more straightforward to exercise following the current DWP consultation and subsequent legislation.
The surplus in the scheme would suggest that the case for buyout has collapsed when a risk-benefit analysis for members and sponsor is carried out.
Against that background I do hope that the Group is actively discussing a new pension investment and funding strategy to meet all stakeholders interests – something incoming regulations require.
The new agreement can plan to make discretionary payments now. The much reduced life expectancies already seen are a windfall gain for the scheme - just as inflation running well ahead of 5% maxima was a benefit to the scheme in real terms. Those factors apart of the interest rate increases should provide you with ample scope to make discretionary payments. Once a “run on” approach is adopted there is the time to ensure sustainable surpluses arise. The sponsor remains with, perhaps, backup guarantees in the unlikely event it fails or has to make additional contributions.
I have also written to the Chair of trustees making these points. I have great confidence you will together be able to produce a package which effectively addresses the needs of all stakeholders - past and present employees and the company as it develops its business further.
I see the pension scheme plan as a litmus test and an opportunity to highlight the real nature of the Group's ESG thinking.
Questions for Current and Former Employees on the Final Salary Scheme Surplus
The current employees ask Head Office
The closed final salary scheme is in surplus. Will the Board propose a new DC tier within it to upgrade pension provision and (part) fund employee and employer contributions – as part of a wider package to benefit all stakeholders?
The former employees ask Head Office
The closed final salary scheme has a surplus. The cost of living crisis has reduced the real value of pensions. Will the trustees and Board agree to use discretionary powers to make temporary payment increases as part of a wider package to benefit all stakeholders?
Both current and former employees can ask employers and trustees whether their respective ESG strategies are aligned on pensions. There is one telling question to ask to position the scheme: What is the long term investment return target set in the Statement of Investment Principles?”
Stable over gilts +1.5% or tapering towards gilts flat? You know what will happen next.
Current DC Employees to Ask Directors and Trustees about DB Schemes
Follow up questions:
Message to Sponsors:
Don’t let past bad governance experiences; tough regulator discussions; admin and time requirements; and one time accounts and contribution volatility set the agenda. Move on. There are new, addressable opportunities.
Under Technical Actuarial Standard 300 version 2.0, actuaries need to show bulk transfers (agreed or planned) against run on options. Expect a quality presentation with numbers worked through form member and sponsor perspectives.
The current employees ask Head Office
The closed final salary scheme is in surplus. Will the Board propose a new DC tier within it to upgrade pension provision and (part) fund employee and employer contributions – as part of a wider package to benefit all stakeholders?
The former employees ask Head Office
The closed final salary scheme has a surplus. The cost of living crisis has reduced the real value of pensions. Will the trustees and Board agree to use discretionary powers to make temporary payment increases as part of a wider package to benefit all stakeholders?
Both current and former employees can ask employers and trustees whether their respective ESG strategies are aligned on pensions. There is one telling question to ask to position the scheme: What is the long term investment return target set in the Statement of Investment Principles?”
Stable over gilts +1.5% or tapering towards gilts flat? You know what will happen next.
Current DC Employees to Ask Directors and Trustees about DB Schemes
Follow up questions:
- Do the Board see the DB pension scheme as integral to their public ESG commitments in financial statements and Sustainability Reports on the environment and about their employees?
- If the DB scheme runs on with no more investment derisking and mortality trends continue, will the scheme generate large surpluses over and above the Regulators idea of low dependency on the sponsor?
- Will the employer consider a new DC tier within the DB pension scheme? (Shut for being too expensive on one basis, now open on a modernised, financially manageable basis)
- Will the employer prioritise better pensions for present and past employees over repayments of surpluses? (Recognise the financial benefit to sponsors and employees if their contributions are funded by DB surpluses)
- Have directors and trustees considered discretionary payments for DB and DC scheme members? Given the C-Suite Pension Strategies know how on exercising discretion will they let me know if they will reconsider them now?
Message to Sponsors:
Don’t let past bad governance experiences; tough regulator discussions; admin and time requirements; and one time accounts and contribution volatility set the agenda. Move on. There are new, addressable opportunities.
Under Technical Actuarial Standard 300 version 2.0, actuaries need to show bulk transfers (agreed or planned) against run on options. Expect a quality presentation with numbers worked through form member and sponsor perspectives.