On the go: Defined benefit scheme endgame plans are threatened by a lack of understanding about “company beliefs”, according to Hymans Robertson, warning that trustees must ensure such beliefs are aligned with strategic pensions choices.
Leonard Bowman, head of DB endgame strategy at the consultancy, noted that this is a factor currently flying under the radar, and may lead to unnecessary misunderstanding and damage between sponsors and trustees.
He said: “Company beliefs are strongly held views by senior company decision-makers that, by definition, cannot be proven to be right or wrong but can profoundly influence company decision-making.
“A company’s beliefs, for instance, on the value of taking investment risk in the pension scheme versus taking that risk somewhere else in the business would have a big impact on the strategic approach.”
In a poll conducted at a recent webinar, Hymans Robertson found that only one in 10 (12 per cent) of the webinar’s 24 respondents felt that their current pension strategy fully reflected ‘company beliefs’ — something Bowman sees as “surprising”.
He continued: “This is a big concern because companies need to understand why they are making their strategic pension decisions. Trustees need to understand this as well, even if they don’t share the same beliefs.
“When current strategies do not fully reflect companies’ beliefs, in the future, when key joint company and trustee decisions are required, there may be disagreement and challenge that could have been avoided by a better articulation at the outset of everyone’s views.”
Bowman added that the problem “will only be compounded if the ongoing communication channels are not as effective as they could be”. He suggested that it is why Hymans Robertson witnessed more than eight in 10 of its webinar’s 33 respondents “report that they have encountered difficulties reaching consensus with their trustees on key issues”.
“As endgame planning gathers pace for corporates, the level of understanding about this could be the single most important factor that decides whether the endgame strategies deliver what companies want,” he said.
To develop and deliver more robust endgame strategies, Bowman said that “effective company and trustee governance” is a vital element.
“This can play a vital role in delivering the chosen strategy and, in particular, ensuring there is regular and open dialogue between the company and the trustees, for example, by the use of joint pension forums,” he said.
“Without this there is scope for misunderstanding and unnecessary disagreement between the company and trustees leading to inefficient strategic decisions, potentially leading to higher costs or worse member outcomes.”
