Employer support stabilises for schemes

Consultancy PwC’s Pensions Support Index, which calculates the strength of FTSE 350 employers’ promises to their pension schemes, remained flat between December 2011 and June 2012.

“The downward trend in the index has been arrested, pointing towards a greater level of stability,” the report found.

Schemes should expect this economic environment to continue in a low-growth, low-gilt yield world, according to PwC partner Jonathon Land.

“We cannot assume there is going to be a reversion, this is the new norm,” he said. “We cannot assume that next year interest rates are going to go up.”

The consultancy calls on schemes to develop a financial management plan to deal with this situation, following the Pensions Regulator’s statement in April, which said: “As part of their due diligence, trustees should be bringing together information and advice on the investment, covenant and actuarial strands to inform a complete financial management plan.”

The report calls for this to be set out on two to three pages and understood by each trustee and key stakeholder to the scheme.

Robert McElvanney, senior investment consultant at consultancy Aon Hewitt, said these considerations are causing many schemes to derisk, but they do not wish to do so at current prices.

“[They are saying] we will take the risk today, but we want to have a process in place for reducing risk, usually when it is affordable,” he said.