The issue
The client is a luxury goods retail business with outlets in a number of fashionable cities around the world. Following our client’s recent final salary pension scheme valuation, the actuary and the trustees requested that contribution rates be tripled, which the company could not afford in difficult trading conditions. The conflict of interest for the actuary between the trustees and the company prevented all groups arriving at an agreement about the future funding of the scheme.
Our approach
First, PwC persuaded the CFO to resign as a trustee, to avoid having a conflict of interest in the negotiations which were to follow. We then:
- Helped the company to quantify its statutory obligations and frame a proposal to the trustees for a contribution pattern over the next three years;
- Facilitated a discussion between both parties to gain agreement;
- Helped the company consider how it might make its future benefit provision more appropriate to the needs and constraints of the business;
- Assisted the company with an analysis of the financial risks it faced through its existing pension obligations; and
- Recommended how these risks could be managed through the pension scheme's investment strategy.
The outcome
In addressing the funding of its significant pension obligations, the company needed to steer an appropriate course between the legitimate concerns of the trustees and the pressures it faced from its bankers. It needed specialist advice in a complex technical area. This advice had to be based on understanding the whole business, but also had to be independent and not advocate the position of the trustees. Our broad-based consulting approach provided all of this.
Once the immediate cashflow issues had been resolved, our ability to look beyond the pension scheme at the whole business led us to suggest longer term solutions to reduce risk which were also more cost-effective, and easier to explain to the workforce, than the options which the company had been considering.
