Defined Benefit 

Deficits distracting trustees from paying pensions

Deficits distracting trustees from paying pensions

A poll of pension scheme trustees has revealed paying pensions is not the key strategic driver for 99 per cent of them.

Instead Hymans Robertson found the 100 pension fund trustees were most worried about the £790bn aggregate UK defined benefit deficit.

Calum Cooper, partner and head of trustee defined benefit at actuaries Hymans Robertson, said the findings of the poll highlighted that when it comes to strategy, the industry still relies on volatile balance sheet deficits and discount rates. 

Focusing on these in isolation clouds the issue of how best to secure members’ pensions, Mr Cooper added. 

He said: “Advisers have a responsibility to help trustees focus on the metrics that matter most – such as chances of success, levels of risk and members’ benefit security - to deliver the pensions promise.”

Clearly Mr Copper said trustees are still being advised to focus on the deficit position. 

While he said it is important, he added it should not be the primary driver of strategy. 

Mr Cooper said: “At the moment, schemes may be unwittingly putting members at risk by failing to take a broader view and strategic approach. 

“We believe that it is our role, as advisers, to make sure that trustees are focusing on the strategy, risks and metrics that matter.”

Whatever the ultimate goal for the scheme, Mr Cooper said managing cashflow was integral to longer term strategic planning, as schemes need cash to pay pensions.  

Only 9 per cent of trustees surveyed recognised cashflow negativity was an issue affecting their scheme, despite increasing numbers of schemes becoming cashflow negative. 

Hymans Robertson’s 2016 FTSE 350 pensions analysis research showed 57 per cent of FTSE 350 DB schemes are already, or soon to be, materially cashflow negative – i.e. payments out exceed contributions in to the scheme.

Chris Daems, director of Cervello Financial Planning, said the report highlighted some concerning trends and the lack of longer term strategy when it comes to the performance of the fund. 

He said: “Hopefully this report will act as an incentive for some trustees to take action on developing a longer term plan to cover their liabilities.”

emma.hughes@ft.com

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