Warning on defined benefit ‘endgame’ strategies

Pensions consultancy Hymans Robertson has warned that a lack of understanding about “company beliefs” and how they impact decision making around pensions schemes could endanger the success of defined benefit “endgame” strategies.

The consultancy has warned that as these beliefs “shape company decisions” it is imperative for them to “align with strategic pensions choices.”

It’s worried that this is being neglected and can lead to unnecessary and damaging misunderstanding between sponsors and trustees.

The defined benefit (DB) pension schemes and other post-retirement benefit plans of the UK’s 350 largest listed companies had assets of around £837 billion at the end of October, 2021, according to Mercer.

Leonard Bowman, Head of DB Endgame strategy at Hymans Robertson, 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.

“We were surprised to find in a poll we took at a recent webinar that only one in ten (12%) of respondents felt that their current pension strategy fully reflected ‘company beliefs’.

“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.

“This will only be compounded if the ongoing communication channels are not as effective as they could be, which is probably why we have also seen more than 8 in 10 (82%) of company respondents report that 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.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.