Scheme De-Risking: the Finance Director’s Cut
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Scheme De-Risking: the Finance Director’s Cut CBI Pensions Conference 9 September 2010 François Barker International Department Head, Pensions, Hammonds LLP
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Transcript of Scheme De-Risking: the Finance Director’s Cut
Scheme De-Risking: the Finance Director’s Cut
CBI Pensions Conference 9 September 2010
François BarkerInternational Department Head, Pensions, Hammonds LLP
A Suite of Practical Options
Changing / closing off accrual
Reducing investment risk
Reducing liabilities
Using non cash assets
The main issues to navigate round
Legal / financial implications
Changing / Closing off Accrual
Aim: Stop further build up of liabilities + curtailment
gain for accounting
Issues:
Employee consultation - 30 to 90 days
Managing Section 75 risks
Contractual rights of employees
Scheme amendment powers / incentivised opt out
Getting / keeping trustees onside
Only tackles future risk
Reducing Investment Risk
Aim: Minimise risk / volatility + preserve return expectations
to minimise impact on cash / P + L
Issues:
Buy in / buy out options
Cross-subsidy
Provider covenant vs sponsor covenant
Funding strain and premium: use non cash assets?
“Synthetic" assets - better diversification, returns and liability hedging
Review of buy in / buy out contracts and investment agreements
Reducing Liabilities
Aim: Reduce absolute size of liabilities / gearing +
offer choices to former / legacy employees
Issues:
Enhanced Transfer Values
Need cash injection so impact on accounts
But may be other options
Pension Increase Swaps
Don’t need cash but move to CPI may make unnecessary?
Legal risks: misselling and Pensions Regulator, scheme rules, trustee
engagement and Pensions Act 1995
Non Cash Assets
Aim: Conserve cash / unlock value of undervaluedassets / longer recovery plans
Issues:
Parent company guarantees and charges already well used
Now focus on intermediate funding vehicles
Company assets to produce income flow for pension scheme
Wide range of assets used (real property, IP, inter-company loans, physical assets)
Funding and security advantages – a genuine “win win”
Multiple legal, accounting, tax and valuation issues
And don’t forget
RPI is likely to become CPI
Act now to preserve the ability to extract scheme surplus
Amend conflicts policies to addess the Bribery Act 2010
Transitional Finance Act 2004 rules expire April 2011
Default retirement age of 65 disappears April 2011
DC contracting out disappears April 2012
Scheme De-Risking: the Finance Director’s Cut
CBI Pensions Conference 9 September 2010
François BarkerInternational Department Head, Pensions, Hammonds LLP
