Accurate data on scheme balance sheets and a willingness to seek information independently of consultants and advisers is crucial to managing a scheme facing changing cash flows, the chair of the Stagecoach Group Pension Scheme said this week.
Speaking at a conference organised by the Pensions and Lifetime Savings Association, Derek Scott, chair of trustees for the transport company’s pension schemes, said going the extra mile to seek specific data and ensure its veracity was crucial for making scheme decisions.
The biggest lesson we’ve learnt is to check things – we don’t rely on third parties to do things for us
Derek Scott, Stagecoach Group Pension Scheme
He said that while the scheme continues to monitor the value of the assets and discounting of liabilities, the trustees “have really made cash flow the priority”.
This is in contrast to much of the information provided by consultants and fund managers, he said.
“There’s a tendency from the consultants in this industry to present us with graphs. If you look at the graphs, they tend to be about outflows, they tend not to be about investment income, or when you look at the investment side of it, it tends to be asset allocations... We have to go beyond that.”
He added that despite this, cash flow figures were fairly stable once schemes managed to obtain them. “Benefit outflows are actually fairly reliable, pension payment doesn’t change a lot. Occasionally you might have a transfer value or commutation exercise," he said. “The thing that we do that others don’t seem to bother with is to actually monitor the investment income.”
Self-reliance and control
In addition to this, Scott stressed the importance of being self-reliant when seeking information about the scheme. This was learnt the hard way in the early years of the scheme, he said, after discovering an adviser to the scheme had been accepting commissions from a well-known company in the pensions industry.
He said: “The biggest lesson we’ve learnt is to check things – we don’t rely on third parties to do things for us... This was brought home to us in a very stark way.”
As the cash flow profile of the Stagecoach Group scheme changed, Scott said investment income and drawdown became areas of greater focus for the trustees, taking more control of it in order to pay benefits.
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“What changed for us is, instead of letting the investment managers keep the income earned and reinvesting it, we said, ‘No, we the trustees will have first call on it, we need it to pay pensions with’.”
Increasing awareness
John Walbaum, head of investment consultancy at Hymans Robertson, said around 50 per cent of defined benefit schemes are now cash flow negative, and so strategies to deal with it would come into increasing focus.
“What’s happening now is pension schemes are closed, pretty much… and we have a lot of pensioners coming in [and] no new people coming in. We have now reached a situation where we need to concern ourselves with the issue of [having the] money every year to pay the benefits out.”
