NAPF conference 2013: Finance directors are making a “big mistake” if they think they can get defined benefit liabilities off their balance sheets without collaboration with trustees, a scheme manager told delegates at the conference.
Richard Soper, chair of the £1bn First UK Bus Pension Scheme, said: “The key is effective governance and partnership.” He added FDs should devote time to trustees in “proportion to the significance of their obligations”.
“If you believe you can’t change it, you won’t give the time to it, but that, we think, is a big mistake, and it’s quite misguided and it’s actually untrue,” he added.
Soper urged FDs to promote joint ownership of the scheme’s investment strategy and to develop the flight path with scheme trustees.
“It’s very important to ensure the trustees are properly resourced,” he added. “It isn’t enough, clearly, to get them in... and simply bang the table. Actually, part of this influencing process means that you need to ensure as FDs that your trust body is itself properly set up and, particularly in the area of investment, has got the resources to do the job properly.”
FDs and trustees should focus on the shared goal of reaching full funding, said Sorca Kelly-Scholte, managing director of client strategy and research at Russell Investments, who was speaking at the same session.
“For trustees, that’s their exclusive duty. For the company, it’s the means of removing risk and the cost to their businesses from the balance sheet,” she added.
Kelly-Scholte also said the focus had turned to asset allocation as a means of getting schemes to full funding. “The lever that’s being pulled is the balance between equities and fixed income,” she said, adding that these levers had lost their power in the current economic climate and other options need to be explored for sponsors to feel their cash injections are delivering a benefit.
Schemes should explore tactical asset allocation strategies, as well as alternatives and liquidity, she said, adding “new opportunities are abundant”.
Francois Barker, national head of law firm Eversheds’ pensions group, asked the panel for their thoughts on other ways to gain control, such as “with the valuation process, to get in first rather than wait for the trustees to set the agenda with their numbers” or alternatively making cash contributions a condition of the trustees following a certain investment strategy in order to gain some control.
Soper warned that while some condition-setting could be useful, an approach seeking to gain control is “unhelpful”.
“Any kind of confrontational or combative approach to this process, I think ultimately will fail,” he said.
