The Board Room Requirment
The pension world has changed considerably. The quality of the work prepared for the trustees of pension schemes has improved beyond recognition. A new generation of consultants with knowledge of the fixed income market has changed the landscape. The established firms have responded. Information that emerged only slowly and with limited backup is now far more readily available. Investment analysis is in depth. The regulatory regime also has an agenda and an expectation that the framework within which schemes operate is considered carefully and documented. Risk is now a much discussed idea.
If corporates do not match the analytical standards of the trustees and put forward the Board's viewpoint then they really should not be surprised if the strategies of the schemes do not reflect their interests. Further, as the corporate is underwriting all the costs of the work, then there is every reason to ensure a level playing field. For a Board making decisions on capital allocation, funding structures and on mergers and acquisitions, the corporate's own pension scheme may be a significant factor. The liabilities of the schemes -actual and contingent -have become material items.
At present the advice received can be fragmented. There is a habit for consultants to be careful and "to peddle fear", highlighting risks and costs without examining the spectrum of outcomes and the degree of control that the parties have over determining those outcomes. The idea of when does the corporate need to conclude that more resources are really required by their Pension Scheme is hardly considered.
Traditionally the finance director has taken responsibility for the subject and in large part that should continue to be the case. What can now happen, with information more readily available and with the relevance of the questions remaining high, is that all the Board members can take a view as they can on other Board agenda items. Capital expenditure and pension contribution are both core topics. Leaving it to the experts is itself a costly plan.
If corporates do not match the analytical standards of the trustees and put forward the Board's viewpoint then they really should not be surprised if the strategies of the schemes do not reflect their interests. Further, as the corporate is underwriting all the costs of the work, then there is every reason to ensure a level playing field. For a Board making decisions on capital allocation, funding structures and on mergers and acquisitions, the corporate's own pension scheme may be a significant factor. The liabilities of the schemes -actual and contingent -have become material items.
At present the advice received can be fragmented. There is a habit for consultants to be careful and "to peddle fear", highlighting risks and costs without examining the spectrum of outcomes and the degree of control that the parties have over determining those outcomes. The idea of when does the corporate need to conclude that more resources are really required by their Pension Scheme is hardly considered.
Traditionally the finance director has taken responsibility for the subject and in large part that should continue to be the case. What can now happen, with information more readily available and with the relevance of the questions remaining high, is that all the Board members can take a view as they can on other Board agenda items. Capital expenditure and pension contribution are both core topics. Leaving it to the experts is itself a costly plan.