By coincidence, I spent this morning listening to LCP talking about the pension trustee and this lunchtime reading about how sponsors should ignore him/her at their peril.
From experience, I find the conversation between trustees and employers a little awkward. Trustees, especially sole trustees are becoming compliance officers for the Pensions Regulator, they are employed to keep costs and risk down, not to optimise the value of the pension scheme to members and beyond that to sponsors.
The covenant arm-wrestle of the period of quantitative easing has left trustees and employers at loggerheads and much as Hymans Robertson would have companies engaging with their trustees, they no longer speak the same language.
This is hardly surprising. When trustees were drawn from the corporate board and put forward through election by members, there was an easy conversation between company and scheme. The rise of the professional trustee, efficacious as it has been in delivering the various codes of the Regulator, has not led to an understanding of the company by trustees or vice versa.
The rise of multi-employer DC plans – master trusts – has not led to employers having direct input to the trustees. Trustees of these plans are typically drawn from a relatively small pool of professional trustees, diminished further because most of the trustee skill-set is targeting the management of DB schemes.
Unsurprisingly, we find the aims of trustees and corporates continue to be at variance. A company may wish to put a DB problem to bed and pay a premium not to have to consider pensions in corporate strategy, a trustee may be mindful that that premium can pay DB increases and improve DC pensions for decades to come.
For consultants such as Hymans Robertson, there is a natural temptation to establish a niche with the door closing upon them. When the Trustees know, or think they know, as much as the consultant and when the corporate is being advised on strategy by corporate advisers who increasingly get pensions, the space for specialist firms diminishes.
“Flexibility”, the solution proposed in this paper, keeps the consultant in the game but is if the answer for trustees and corporates? I suspect that so long as schemes live in the demi-monde of potential buy-out, they will not be able to adopt investment strategies for the long-term. So long as they keep the option to run-on, they risk losing the fragile surplus and corporate support to buy-out that might exist today.
Flexibility comes at a price and inevitably that price will be paid by members and employees who may get the worst of both worlds;- the endgame being an interminable goal-less draw.
