Pensions: Unprecedented times, unprecedented actions

PwC sees Irish business assuming greater control of their pension arrangements.

  • Increasing recognition of the real risks that pension schemes create within businesses.
  • Companies are taking significantly more active control over their pension arrangements including funding and investment strategy.
  • While many companies need to agree a funding plan with Trustees by the end of 2009, the level of cash potentially required is beyond acceptable levels for many organisations.

With unprecedented market turbulence continuing to impact pension scheme financial health, businesses are taking a more active and commercially-focused approach to assessing and addressing their pension obligations and risks, says PricewaterhouseCoopers (PwC).

There is no doubt that many Irish businesses are facing serious challenges when it comes to their defined benefit pension plans. Many are looking at their ongoing commitment and affordability and the risks being run. With pension contributions to schemes in deficit at 30% to 40% of many payrolls, this level of funding is being deemed unacceptable when cash is badly needed to develop the business for long term viability.

The legal position is complex and employers need to understand the exact nature of their pension commitment under the scheme.

Speaking at a joint breakfast briefing by PwC with Eversheds O’Donnell Sweeney focussed on the actions being taken by companies to resume control over their pension funding issues Munro O’Dwyer, Director, PwC Pensions Group said:

“Companies need to assess what the risks are, how much cash is needed now and what are the risks of increasing cash demands in the future. There are opportunities and options for companies to regain control over their pension arrangements. A well managed recovery plan will include assessing the risks, determining the cash funding required, looking to negotiate with Trustees as to what is appropriate and, ensuring that what emerges is appropriate to meet the needs of the business. The need to manage pension costs for many employers is key to the long term viability of the business. “

Peter Fahy, Head of Pensions, Eversheds O’Donnell Sweeney added:

“The legal framework offers solutions for business when it comes to managing their pension costs and companies must look at the options very carefully. Recent Pensions Act changes represent a key opportunity for employers to look at their pension promise, but funding plan deadlines are looming, and employers need to proactively engage with their trustees to take advantage of this opportunity.”

PwC suggests a four-point plan enabling companies to gain control over their pension arrangements:

  • Ensure that clear corporate objectives have been set including a clear articulation of the pension policy covering risk appetite, acceptable cost and cash levels and impact on corporate results;
  • Understand what decisions are under corporate control; for example in the areas of funding, investment, benefits and reporting;
  • Understand the impact of pensions on the business and how key exposures impact on cash, overall costs and results.
  • Take relevant steps to improve the position. Companies should also take a more active role in a number of areas including establishing alternatives to cash in any recovery plan; taking the lead on contribution demands; identifying ways to reduce liabilities reduction exercise; and reviewing the pension scheme investment strategy. Pension plan redesign and renegotiation are actively being considered within many organisations.

  • Businesses with defined benefit pension plans are increasingly treating them as if they were business subsidiaries of the same value, and they are allocating commensurate resources to the management of pension risk.

    Munro O’Dwyer concluded:

    "While setting funding and investment strategy remains the pension scheme trustees' legal responsibility, more active company involvement and intervention would help ensure that strategies are appropriate to the business and its long term viability.”

    ENDS

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