Defined BenefitJun 1 2018

Trustee sees pension negotiations with employers hardening

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Trustee sees pension negotiations with employers hardening

Funding negotiations between employers and pension trustees are getting harder as economic worries and new scheme rules bite, an independent trustee and governance services provider has said.

PTL found in its latest quarterly risk survey that most defined benefit trustees were worried about so-called ‘employer covenant risk’, which means they were concerned about employers becoming unable to meet their obligations to the scheme.

The share of votes the category received in the latest survey in May doubled from 13.87 per cent to 27.59 per cent since the survey was first carried out in June last year.

The 174 trustees which responded were also increasingly worried about new deficit funding rules.

The Pension Regulator (TPR) made clear in its 2018 funding statement it expected trustees to be more robust in negotiating the balance between deficit reduction and dividend payments.

Richard Butcher, managing director at PTL, said trustees’ wariness of employers could result in trustees reducing their exposure to investment risk and more conservative funding valuations down the line. 

"These two combined [employer risk and deficit repayment rules] hint at a cycle of far more difficult funding negotiations between trustees and employers," he said.

Fear around the impact of Brexit on investments was also high up on the list of concerns but had fallen down the list of worries from one year ago.

Mr Butcher said: "The risk score for the investment impact of Brexit has once again increased, perhaps as we near the end of the negotiation period without any real clarity around what will happen to the markets, or those who raise capital through them."

He added the survey had seen a number of new compliance and governance risks flagged to it.

"This may be reflective of TPR’s relatively new ‘quicker, clearer, tougher’ approach and the fact that more trustees are feeling the pressure of getting things wrong," Mr Butcher said.

Henry Tapper, director at First Actuarial and founder of the Pension Playpen, warned against "scaremongering" by professional trustees.

He said trustees and employers should look at deficits in "a more conciliatory way", saying data collected by First Actuarial suggested these deficits were quite often "artificial".

He said: "We would try to get the scaremongering out of this and look for a less confrontational discussion between employers and trustees without fear of a preemptive strike by the regulator."