Time for Corporate Sponsors to Embrace DB Schemes as ESG Flagships

henry tapper

3 years ago

This post is by William McGrath, formerly CEO of Aga-Rangemaster, now heading C-Suite.

He is one of a breed of entrepreneurial leaders who see pensions as a force for good , rather than a millstone around the finance director’s neck.

Time for Corporate Sponsors to Embrace DB Schemes as ESG Flagships

The “Get Rid” Presumption is Replaced with Revitalise Now

The Risk Transfer Industry case is that corporates just want out. The patronising line of “leave it to me and you can concentrate on your core activity” is repeated regularly. But does it stand up to analysis?

Chair and CEOs want to concentrate on core corporate activity	ESG Statements and Sustainability Reports make clear that environmental and societal issues head the governance agenda. Pensions are core and part of DNA : not a distraction.
Scheme is shut to new members	Shut on one basis; revitalised and reopened on a modernised DC basis.
Endless cost and volatility	Volatility and contribution levels are well understood and under control after nearly 20 years work with TPR. It is time to update thinking. Start with schemes paying all the costs. Plan to eliminate all DB and DC costs from company accounts and have P/L credits.
Investor indifference	Not any more. Pensions can provide a boost to markets when a gilts fixation ends. As ESG / Impact funds see their remit as relevant to updated pension fund thinking. Surpluses are available to fund DC commitments, raising company cash returns. There will be real interest from investors on reputational and financial counts in the new mindset.
No financial upside	Surpluses will emerge that can be used to fund DC contributions and bring surplus repayments. Earnings and cash benefits will materialise and financial market and ESG rating will improve. Markets will establish upward momentum.
Time / administration / employee disinterest	With new timeframes set there is a reason to look at the governance (including the trustee structure) and the admin of the scheme – areas in which the major consultancies have under-invested. Better systems will be a material boost as funds flow into productive assets. As schemes reactivate and current pension provision is a topic linked to DB schemes, so the level of interest amongst relevant current employees will quickly recover.
Government and Regulatory pressures	Government has a renewed enthusiasm for investment. TPR’s role is tied in with Bank of England and PRA as never before. Avoiding life insurer concentration risk is now recognised as a positive of run on.