Insider Business Club: pension trustees

What impact is the current financial crisis having on the short-term
outlook for pension funds?

Alan Thomson, chairman of Bodycote and vice-president of
ICAS

Certainly the situation with funding is the number one issue for boards of
directors. I sit on a number of boards and each meeting I have attended has
dedicated time to the issue of funding. Treasurers are under a lot of pressure
to produce forward forecasts because, if you are a pension trustee, you are
relying on the company to continue to have the cash to make contributions.

In many cases, given the scenario with the banks, companies are running into
difficulties. Highly indebted companies are finding themselves in severe
difficulty.

Pension trustees should be watching their sponsored employer to make certain
they understand the position the company is in.

I have no doubt that with lower liabilities and with the assumptions that
they are making on these tri-annual or almost annual valuations, the situation
is getting significantly worse and trustees must be sure the company can fund
the contributions required and perhaps increase them.

Are there other models around the world which could influence future UK
pension provision?

Patrick Disney, managing director of SEI Europe and South
Africa

You have, obviously, different legal structures among the main big pension
markets but you broadly have a board of trustees or a board of directors
responsible for the fund and you can’t really delegate that responsibility. What
you can do is have people who are accountable for their advice.

In Holland there has been a big move to fiduciary management. They have been
looking at the way in which decisions are made and advice given to very large
pension funds. The thesis is it’s much better to delegate to a fiduciary
manager, who applies his advice and is accountable to the board. They are not
looking towards quarterly meetings to make decisions but have an expert who is
accountable for it on a daily basis, who can move quickly, come up with ideas
and who is remunerated directly in line with the objectives and interests of the
fund.

What we are talking about here is a different way of making decisions and a
different structure. This is not something which is going to be bought
immediately albeit, there has been a reasonably swift move in Holland and I am
beginning to find a pretty good deal of interest here in the UK.

It’s a concept which will be looked at and discussed over the next couple of
years.

How should employers deal with trustees?

Charles Nall, chairman of the Charity Finance Directors Group and
corporate services director at The Children’s Society

At the Children’s Society we are very, very interested in what trustees at
the Pensions Trust are up to and we have a very robust, as well as constructive,
conversation with them. One needs to sometimes call spades spades. Its not
rudeness, it’s a clear exchange of views behind closed doors about what a
charity or employer can afford.

If we feel the advice the trustees are receiving is inadequate, it is a
source of concern, particularly when one looks ahead to what is likely to be a
period of recession.

I don’t think the relationship needs to be adversarial. Clearly the interests
are aligned – the employer wants to stay in business, the shareholders want a
future profit and the trustees want a future cashflow stream from the employer.
Where you hit problems is when the shareholders can’t see a profit in the future
and interests are no longer aligned.

So I spend time with our trustees, but I also take time to equip myself with
the knowledge of the market and some of the tools available. We are not alone in
considering buy in, for instance, for pensions and payment, and I’m sure there
are many others out there who are taking a look at that now.

It’s quite a tight market at the moment, it may be better the next year when
there is more capital in that particular market. Trustees need to consider it,
invest time in training and development and get a grip on the opportunities.

Chaired by Damian Wild

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