Pension scheme funding is now widely recognised as having a far-reaching impact on the entire financial well being of organisations. Hymans Robertson’s Corporate Consulting team were recently contacted by the Finance Director of a company whose pensions situation was casting a shadow over its ability to freely operate and plan for its own future.
WHAT WERE THE KEY ISSUES?
The board were looking for help in tackling the deficit on their defined benefit scheme. This legacy scheme was now closed to new entrants, but the board were concerned about the ongoing deficit and the potential impact on the company’s finances.
In previous years, the company had tinkered with the deficit, having taken advice from the trustees’ scheme actuary. But because this advice had been tactical rather than strategic, the lasting impact had been minimal.
This was a successful company, with ambitious plans for growth and a far-sighted board. However there was a strong likelihood that the pension scheme deficit would soon restrict their plans for growth, simply by tying up capital earmarked for growth and development. Whilst they had sufficient capital to cover existing commitments, the FD recognised that the risks associated with the pension fund could affect fundamental areas of their business, such as their future dividend policy.
A fresh pair of eyes was definitely needed to review the issues and identify a potential solution. Hymans Robertson were appointed to carry out a very specific task: to decommission the company’s pension fund risks.
HOW DID HYMANS ROBERTSON APPROACH THE CHALLENGE?
Their approach was systematic, thorough and comprehensive. They worked closely with the Board, familiarising themselves with the detail of the company’s financial situation and its capital structure. By investing time in this way, they got to grips with the business issues driving the board’s pensions strategy. In effect, they dissected the company’s balance sheet and P&L, just as an investment analyst would.
They clearly identified the scheme’s three fundamental financial dynamics: the amount of money paid in as contributions, the investment strategy and the benefits strategy. Effectively, each of these is a strategic lever which can be adjusted to suit the business priorities and risk tolerance of individual organisations.
The team converted the board’s key business drivers into specified objectives against which possible solutions could be tested. They then modelled a series of permutations, looking at the impact and correlation between the different levers being pulled within an overall strategy, before making their recommendations to the board.
WHAT WAS THE DECISION-MAKING PROCESS?
Having worked closely with the company’s management team throughout the whole process, the Hymans Robertson team then worked with the board to communicate and ‘sell’ the proposals to the next tier of management across the organisation.
They also supported the board in discussions with the trustees and in preparing all the relevant documentation and briefing materials for consultations with employees.
OVERALL,WHAT DID HYMANS ROBERTSON BRING TO THIS PROJECT?
Most importantly, they helped the board to challenge some of its long-held notions about pensions, and what could and could not be achieved.
Hymans Robertson didn’t sit on the fence. They found a fresh new way to look at the issues. By presenting the three key elements of the scheme’s financial position in a business context that no-one had done before, they enabled the company to look at things differently. It was, to use that
well-known phrase, ‘joined-up thinking’.
Unlike the firm advising the trustees, Hymans Robertson saw the pension scheme as an integral part of the company’s financial structure, rather than as a separate entity. In short they addressed the company’s challenges as business issues, rather than pension problems.