A long-standing client of Hymans Robertson was in the process of bidding for a major outsourcing contract, which would involve employees moving from their original employer to join their workforce.

A key factor in the negotiations was the provision of a pension scheme for these employees. The question was: how much should the bidding company allow for pension costs when calculating their bid?

It’s just the sort of challenge that the Hymans Robertson Corporate Consulting team thrives on.

WHAT WERE THE KEY ISSUES?
Understandably, the bidding company did not want to take on any pensions risk unless it had been priced appropriately into their bid. They had closed their own scheme to new entrants and did not want to take on additional pensions risks that were undefined. The key issue for the bid team was understanding what price to charge in their offer, in respect of future pension scheme provision.

HOW DID HYMANS ROBERTSON APPROACH THE ISSUE AND HELP TO FIND A SOLUTION?
Using stochastic modelling tools to analyse the potential scenarios, Hymans Robertson produced a range of different outcomes for the company. These took into account the different levels of risk associated with different prices paid and enabled the Board to look at the impact on future profitability of each scenario.

Their analysis was able to demonstrate the significant impact on profits that could be caused by variations in the pension costs. It also identified the level of underwriting that the company would require from the seller. It further showed the relationship between risk and price. In the worst-case scenario, the whole profitability of the contract could have been wiped out due to pension scheme costs.

In addition to identifying the costs and associated risks, the analysis identified the range of probabilities and levels of certainty of different outcomes.

HOW DID HYMANS ROBERTSON FACILITATE THE CLIENT’S DECISION-MAKING PROCESS?
Hymans Robertson presented the company with a full range of figures covering each potential scenario. They helped the bid team understand the levels of risk they were taking on, how to price them and how to mitigate those risks through their offer price. In essence, Hymans Robertson provided them with all
the information they required to be able to price their bid and to ensure that it was sufficient to cover the future costs of the pension scheme.

OVERALL,WHAT DID HYMANS ROBERTSON BRING TO THIS PROJECT?
Hymans Robertson worked closely with the Board as a team. They put the company in the best possible position to make informed decisions and conclude the deal. In the process, they educated the Board and the team putting the deal together, so that they all recognised the key drivers of both risk and price. None of the key individuals on the bid team had previous pensions experience, so Hymans Robertson’s perspective on the deal was invaluable.

They didn’t provide the team with the answer, but they armed the company with the right information to take control of decisions. In fact, the best decision the company made was to bring Hymans Robertson in at an early stage, as they quickly identified all of the risks associated with the different scenarios. They explained the risks connected with acquiring the pension scheme in a way that the team understood and in doing so, educated those that needed to understand the implications of their offer.

The bottom line was that the company priced the deal accordingly, to ensure that it mitigated the risks identified by Hymans Robertson.