Four in ten employers say DB scheme funding regime provides too little flexibility
JLT Employee Benefits today urges sponsors of defined benefit (DB) pension schemes to take steps to engender a more open dialogue with trustees on funding issues, and take additional professional advice in relation to these, rather than relying wholly on trustees for funding decisions.
Research from the latest JLT 250 Club survey of larger employers1 finds that four in ten employers think their DB scheme funding regime does not provide enough flexibility to suit the current economic climate.
Rob Dales, Director, JLT Employee Benefits comments:
“The research proves that employers think the current regulations are too inflexible but the reality is that many employers underestimate their ability to question trustees’ views on funding levels”. Dales also believes scheme sponsors often commit additional contributions without seeking anything in return.
“In our experience, employers are reluctant to challenge trustees’ views on funding deficit reduction, which are often conservative. The reality is that The Pensions Regulator is always willing to consider well-planned and carefully thought through recovery plans. Best practice is to appoint advisers to help identify the best outcome for employees, pension scheme members and shareholders to complement and to challenge the trustees’ verdict to reach the best-informed outcome.”
Taking advice at the time of the actuarial valuation to assess the level of funding can help robustly, yet responsibly, reach the level of contributions required and make good on any deficit. This will particularly resonate with employers at this time with the deficit of private sector final-salary pension schemes rising in March, a key review period for company pensions.
In fact, the Chancellor’s announcement in the Budget that The Pensions Regulator would be given a new statutory objective to ensure ‘funding arrangements that are compatible with sustainable growth for the sponsoring employer’ should help to strengthen employers’ resolve.
Dales concludes: “It makes more sense for sponsors to agree that the annual pension spend is used to manage down the liabilities of the scheme via ‘member choice programmes’. These can include tools or initiatives such as enhanced transfer values, pension increase exchanges, immediate vesting personal pensions or early retirement exercises. The aim of these programmes is to reduce the liabilities of the scheme whilst giving members options they don’t currently have. By taking independent advice members make the right choice for them at the same time as reducing the size of the pension scheme; the number of future pension problems is similarly reduced.”