Not Such A Smooth Move
3A
pHUfiOilS
NOT SUCH A SMOOTH MOVE SMOOTHING HAS BEEN SWEPT ASIDE, BUT EMPLOYERS CAN STILL FLEX THEIR MUSCLES WHEN IT COMES TO FUNDING PENSION SCHEMES SAYS ALAN COLLINS AFTER ARRIVIilG with a fanfare in December 2072,the idea that defined benefit schemes should be allowed to "smooth" Iiabilities (and reduce the value of scheme deficits) disappeared from the pensions Iandscape last month with a whimper, when the Government confirmed that it would not be pursuing the measure. A short footnote to an idea which had been roundly rejected across the pensions industry - and good riddance, I say. So, what now? The message to advisers is to start using the tools available to them to tackle scheme deflcits. The defined beneflt regulatory regime has a great deal offlexibiliW, especially in the construction ofrecovery p1ans, where realistic investment return assumptions can be used to project fund values into the future. The Pensions Regulator (tPR) also seems to have signalled that trustees should no longer fear proposing recovery periods in excess of10 years - while for now it remains a trigger,
Alan Eollins is head of corporate advisory services with Spence & Partners
"The message to advisers is to start using the tools available to them to tackle scheme deficits. The defined
benefit re gulatory re gime has a great deal of flexibility" 1
sensible plans in excess ofa decade are no longer being shot down. We have seen evidence of 12, 15 and even 20 plus year plans being agreed and "allowed to pass" bytPR. Using the available flexibility can significantly reduce the cash call on employers, allowing them to invest money in their businesses which should, in turn, provide the best form of security for a pension scheme - a healthy ernployer. Furthermore, Chancellor George Osborne conflrmed that tPR will have a new objective to '1have regard for the growth prospects ofemployers". This seems to signal a return to one of the Regulator's original axioms of protecting jobs which
seemed to fall by the wayside when compromise deals on the likes of Reader's Digestwere rejected. Scheme sponsors should never rely soleIy on the advice ofthe trustees' actuary. The actuary has a statutory roie to act on behalfofthe trustees and their advice may not be in the interest ofthe company. Taking proactive and independent advice will ensure that the right balance is struck between protecting the members of the scheme, allowing the employerto maintain or return to a secure trading position and ultimately targeting the best outcome for all pafties - the achievement offully secured benefits for all members with an insurance company, allowing the scheme to be wound up and no longer posing a risk to the long-term health ofthe employer. 6
pHUfiOilS
NOT SUCH A SMOOTH MOVE SMOOTHING HAS BEEN SWEPT ASIDE, BUT EMPLOYERS CAN STILL FLEX THEIR MUSCLES WHEN IT COMES TO FUNDING PENSION SCHEMES SAYS ALAN COLLINS AFTER ARRIVIilG with a fanfare in December 2072,the idea that defined benefit schemes should be allowed to "smooth" Iiabilities (and reduce the value of scheme deficits) disappeared from the pensions Iandscape last month with a whimper, when the Government confirmed that it would not be pursuing the measure. A short footnote to an idea which had been roundly rejected across the pensions industry - and good riddance, I say. So, what now? The message to advisers is to start using the tools available to them to tackle scheme deflcits. The defined beneflt regulatory regime has a great deal offlexibiliW, especially in the construction ofrecovery p1ans, where realistic investment return assumptions can be used to project fund values into the future. The Pensions Regulator (tPR) also seems to have signalled that trustees should no longer fear proposing recovery periods in excess of10 years - while for now it remains a trigger,
Alan Eollins is head of corporate advisory services with Spence & Partners
"The message to advisers is to start using the tools available to them to tackle scheme deficits. The defined
benefit re gulatory re gime has a great deal of flexibility" 1
sensible plans in excess ofa decade are no longer being shot down. We have seen evidence of 12, 15 and even 20 plus year plans being agreed and "allowed to pass" bytPR. Using the available flexibility can significantly reduce the cash call on employers, allowing them to invest money in their businesses which should, in turn, provide the best form of security for a pension scheme - a healthy ernployer. Furthermore, Chancellor George Osborne conflrmed that tPR will have a new objective to '1have regard for the growth prospects ofemployers". This seems to signal a return to one of the Regulator's original axioms of protecting jobs which
seemed to fall by the wayside when compromise deals on the likes of Reader's Digestwere rejected. Scheme sponsors should never rely soleIy on the advice ofthe trustees' actuary. The actuary has a statutory roie to act on behalfofthe trustees and their advice may not be in the interest ofthe company. Taking proactive and independent advice will ensure that the right balance is struck between protecting the members of the scheme, allowing the employerto maintain or return to a secure trading position and ultimately targeting the best outcome for all pafties - the achievement offully secured benefits for all members with an insurance company, allowing the scheme to be wound up and no longer posing a risk to the long-term health ofthe employer. 6
