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All employers should now review their pension strategy

All employers should now review their pension strategy

28 Feb 2020

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At a glance

More than ever, employers need a formal pension strategy. External pressures to have one are increasing

The Regulator requires all schemes to have a long term target and a plan to get there. The Pension Schemes Bill cements this and will give new powers to enforce it

New end game opportunities are emerging e.g. superfunds and insurers looking for ways to meet schemes earlier on their journey – reducing risk

A good strategy will allow you to take advantage of these new opportunities. It will also provide a framework to manage the impact of member behaviour on your journey and set out contingency plans for when you are off track

Your strategy should include a framework to identify how company actions affect pensions. This is essential to protect against greater sanctions for employers

Pension strategy building blocks

Is time a pension scheme asset?

Actions employers can take

As a first step, check if your scheme has a long term target, along with a plan and timeframe to get there. Then review your strategy by:

  1. Assessing the variety of long term targets now available, when you might get there, and if you can afford the risk that remains once there;
  2. Reviewing investment strategy and ensuring there is no unnecessary investment risk on your way to your preferred target; and
  3. Considering how formally supporting members and using contingent assets can help manage volatility on your journey.

What the Pensions Regulator has said

Next month the Regulator will consult on its new funding code. It has already provided insights into what markers it may set for prudent and appropriate long term funding plans.

Bringing it all together

In our experience the best pension strategies are discussed face to face between employers and trustees. Both can then discuss their own objectives and needs, to help frame an approach that works for both parties.

Crucially, any discussion is only effective if employers and trustees can quickly see the impact of different approaches or compromises. We have expanded our proprietary software, Radar, to support strategy and journey planning discussions – please see here. The chart below shows an example of how Radar helped support a discussion on managing investment strategy over the period to buyout in 15 years time.

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For further information, please get in touch with Vicky Mullins or Heidi Webster or speak to your usual XPS Pensions contact.