Reason to Appoint.

In a few words we can summarise what we can achieve for American Corporations; increased efficiency and execution for their UK pension plans.

UK pension funds are set up as Trusts which legally separate pension plan assets from the assets of the sponsor company. The Trusts are run by trustees who, in the main, are not pension professionals. Except where a corporate Trustee is appointed, the trustee body must contain at least a third of member nominated trustees effectively appointed by the plan members. The key point is that the trustees are not pension professionals.

The Trust model described above was fine in the 1960’s through to the 1990’s, however over time this model has become very difficult to operate. A massive increase in the legislation applying to pension plans, and the introduction more recently of the Pensions Regulator, has made the governance of pension plans extremely expensive since few trustees understand their duties and how to make balanced decisions when called to do so.

Since the early 2000’s, accounting standards (and later funding standards) valued the pensions provided by a plan by reference to bonds. Since 2010, bond yields have in generality fallen to unprecedented levels leaving most pension plans with large deficits. Additionally there has been considerable pressure from the Pensions Regulator to hedge the liabilities to avoid pension deficits becoming unmanageable. This is an expensive and complex task.

In the past five years or so, some advisory firms have developed methodologies to help limit a plan’s liabilities or, in extreme cases, reduce them. These methodologies are sometimes complex but even when they are not, they require a good understanding on the part of the trustees.

Today, many professional trustees have the skills and knowledge to assist trustee bodies to come to conclusions more promptly and efficiently than they would otherwise.

Our firm can help American corporations in a number of ways.

First, we are an integrated business which operates in a manner similar to many of the professional suppliers to the pensions market. We have someone at a senior level who leads our team and the team will consist of people with different backgrounds and experience. This optimises our services and reduces costs.

Second, we know the pension providers very well and can ensure that advice is given to the trustees in an efficient way so that the trustees, and not the advisors, control the agenda and goals for the pensions plan.

Third, we can ensure that the American sponsor is kept fully informed of what is going on, including the development of new techniques in the market which might be in its best interests to adopt. We also provide a data room for the plan which all parties, including the American sponsors, can access. We  frequently visit America to ensure that we establish strong and trusting relationships and understand any matters American sponsors may wish to raise.

Over the last year we have seen a move towards appointing professional trustee firms as sole trustee. The law allows sponsors to adopt this approach so there is no member nominated trustee requirement. The advantage of this approach is that it vastly increases the efficiency with which the plan can be operated, such as not requiring hours of trustee training or discussions at meetings. The prime relationship for a sole trustee is with the sponsor company, although it is helpful if we can meet annually with an informal group of UK employee plan members  to check that they  are getting a good service from the plan’s administrators. Consequently the governance costs of the plan are substantially reduced.

There is a final point. Complex investment decisions and the introduction of market leading thoughts are much more efficient under this model and can be implemented with less executive time by the plan’s sponsor.