Managing a pension scheme is no different. That’s why our integrated, risk-based approach starts with setting clear long-term objectives. Then it’s all about developing strategies that give you the best chance of success.
Setting DB schemes on the Road to Resilience
Throughout 2015 The Pensions Regulator stressed the importance of taking an integrated approach to risk management. The majority of schemes we surveyed last year told us their biggest challenge is exactly this; ensuring their approach to funding is integrated and risk-based.
After all, despite £500bn being ploughed into UK DB pension schemes since the start of this millennium, deficits have tripled to around £900bn. For us, resilience is key. Make your scheme more resilient to risk and you improve your chances of success.
That’s why through our Road to Resilience we focus on pinpointing clear objectives and then focus efforts on how best to achieve these. By understanding and quantifying the risks which might be a barrier to success, you can actively prioritise and mitigate the key ones. By creating genuinely measurable and integrated strategies, we improve the chances of you meeting your goals.
Mile 1 - Affordability
34% of the FTSE350 have closed their DB pension scheme to future accrual. Many others have made changes to reduce the cost of benefits accruing. Are you worried about the cost of your benefits, but also the impact any benefit changes might have?
The end of contracting-out in April 2016, which increases employers' National Insurance Contributions, combined with the introduction of the Living Wage, will only increase the trend for DB schemes looking to manage the cost of their benefits. But we know that benefit change is hard.
There’s a balance to be struck between offering employees quality benefits alongside managing the associated cost and risk to your company. It’s not just the things you have to do that seem tough, but you worry how staff will react. The change may be driven by legislation or it may be driven by a strategic or financial imperative.
We take the stress and strain away. We work to really understand your workforce and deliver the change in the way that works best for them and you. Of course you can expect great project management, insights into best practice and legislative change. But it’s our focus on you and your workforce that will really ensure your change programme succeeds.
You need to reduce the cost of managing your DB scheme whilst still helping your employees save for retirement. How do you create a win-win situation?
Our team are experienced at navigating the intricacies involved in this type of project; we bring all parties together to understand the options available and work towards getting the best result for all involved.
It was clear to us that the solution to their problem would require sacrifices from all parties. Implementing the solution therefore required engagement with the Trustee, scheme members, unions and the pensions consultative body and the success of the outcome is a credit to their approach to dealing with all of these stakeholders.
Partner, Hymans Robertson
Mile 2 - Growth
The average UK DB pension scheme holds around 50% in growth assets. Whilst you may have the cash and contributions to meet your pension payments now, have you thought about what you’ll do when this is no longer the case?
Pension schemes have placed three big bets on investment returns over the last 15 years. This has resulted in a tripling of the deficit.
Schemes need to become more resilient to risk, and the starting point for this is understanding what you’re trying to achieve so you can work out how to get there. You might be pleasantly surprised to find out you can actually achieve your goal by taking less risk, whilst ensuring that every element of risk is effectively rewarded. It’s about the right level of risk as well as taking the right risks at the right time.
We take a fully integrated, 3D approach to funding that considers contributions, covenant and investment. Seeing this bigger picture explores a wider range of strategies and means you choose the route that’s best suited to your needs and most likely to meet your goals. We’re the only consultancy to measurably incorporate long-term covenant risk in to our strategic analysis and recommendations – meaning you can maximise, and evidence, the progress you are making towards improving the security of your members’ benefits.
We’re all for working together; setting common goals between trustees and sponsors that leads to the best outcomes for all involved, including members.
Despite the underlying volatility of pension scheme funding, you need to deliver on your pensions promise and keep cash payments stable and affordable. How do you get the best result for all parties?
Our fully integrated, risk based approach sets clear objectives, aligns interests and aims to reduce long-term risk and improve your chances of success. Through our Resilience Review you can get a fresh perspective on your objectives, strategy and contingency plans – ensuring you’ve got clarity of purpose, precise bearings and are travelling with the right risks, at the right time and at the right pace.
In the interests of good governance, we put the schemes out to tender with the objective of hiring one firm to provide Scheme Actuary services to enable a more joined up approach. We were looking for a pragmatic, collaborative team to work across the individual schemes, with proven expertise and innovation in services, grounded by robust project management skills. We had first-hand experience of how they worked through two of our schemes and are confident they will be able to deliver a consistent approach across the relationship with all of them.
Hymans Robertson’s performance in managing the transition met the high standards they had evidenced as part of the tender process. Their strong project management meant that they delivered the transition plan effectively in line with our ambitious timescales which built confidence with the Trustee Boards.
Pensions Director, BAE Systems
Pensions Director, BAE Systems
Mile 3 - Income
As DB schemes mature, cashflows carry the risk of selling assets at a bad time. As outflows are due to increase more quickly, managing this risk can be the difference between eliminating scheme deficits and UK DB having a £250bn additional shortfall.
Our analysis shows 50% of the FTSE350 are already, or soon will be, materially cashflow negative (money out exceeding contributions received). Yet when we asked trustees, only 4% recognised this as a strategic issue affecting their scheme. The shortfall for UK DB already stands at £20bn p.a. and is set to increase to £100bn p.a. by 2030, emphasising how important it is that assets deliver the right income, at the right time, for the right price.
Schemes need to start planning for drawdown, but how you can make your scheme more resilient to this very real and very important risk? Our ABC - Assets Backing Cashflow - approach makes sure you always have the assets to meet the cashflows you need today and tomorrow. By putting cashflows at the heart of your integrated risk management plan you can make sure that you are never forced to sell assets when they are cheap and you focus on secure and stable sources of income generation.
You’re paying out more in benefits than you have coming in from contributions. You need a reliable source of cash to pay members’ benefits, without putting unnecessary strain on the sponsor.
We can help make your more resilient to this risk by getting a GrIP on your assets; striking the right balance between Growth, Income and Protection will help you focus on what matters most and give you the best chance for success.
Hymans Robertson helped us to restructure our portfolio to address the significant deficit in our Fund, which was putting us at risk of having to sell assets to meet our liabilities. This was a worst case scenario that we were anxious to avoid, both from a trustee and sponsor perspective. The revised portfolio has reduced our reliance on equities as well as ensuring that we have the income needed to match our outgoings, increasing our chance of paying all our members’ benefits. Additionally we have increased protection in place to ensure we are less susceptible to future adverse market conditions. A great result all round for the Fund, sponsor and members.
Chairman of Trustees, Molins UK Pension Fund
Mile 4 - Protection
Many schemes should be looking at ways to transfer risks today.
Rather than waiting until full buy-out is affordable, schemes who proactively chip away at their risk, via a series of well-planned risk transfer deals, will reap the benefit.
One of the biggest concerns for trustees and sponsors is how and when to transfer risk to an insurance company via a buy-out, buy-in or longevity swap.
Whether you are targeting a full buy-out or self-sufficiency, there is a fabulous range of risk transfer options in today’s market, meaning transferring risk is more accessible than ever.
But it’s a complex market and failed transactions can be very costly, that’s why we spend our time and energy making sure the process of transferring risk is simple for you to execute, and only explored when the time is right for you.
Transferring risk can be a bit of a minefield – when’s the best time, what’s the best solution and how do you make sure you get the best price?
We’re the only consultancy to advise pension schemes, insurers and reinsurers on all types of risk transfer transactions, so you can benefit from this unparalleled insight. With a 90% conversion rate against an industry average of 50%, you can be sure you’re doing the right thing, with the right partner, at the right time.
The Trustee is delighted with the results of the buy-in, which has had material impact on our Scheme. When we started the process we never expected to be able to afford to insure the vast majority of our pensioner liabilities. We are grateful for Hymans Robertson’s proactive and timely advice to achieve this positive outcome, with the added bonus of reducing our technical provisions deficit at the same time as reducing risk.
Trustees and Finance Director, DSV Road Holding Ltd
The information contained does not constitute advice and should not be considered a substitute for specific advice.