Sponsor side services
Too many sponsors learn that waiting for the trustees and their advisors to deliver their scheme requests can reduce shareholder value. In all other aspects of the sponsor’s business, it is the sponsor that drives their agenda – why not in defined benefit pensions?
We support defined benefit sponsors through funding negotiations by working collaboratively with the trustees and their advisors to achieve appropriate and balanced funding outcomes for schemes which improve member benefit security, and ensuring that the agenda of the business and shareholders are also fairly considered.
Where to commit a sponsor’s resources depends on the marginal efficiency of that extra pound. In considering the level of support to commit to the pension scheme, sponsors have to ask themselves a number of key questions, including:
- What is the internal rate of return of the business?
- What is the scheme offering as a return?
- What is the risk adjusted return in both cases?
- What would the sponsor do if the scheme was not there, and why they are not doing it anyway?
The sponsor also has to consider the needs of other stakeholders such as the shareholders, banks, credit rating agencies, suppliers etc. and how they view pension risk.
Sponsors need to be pro-active in setting out the true employer covenant story and ensuring that the capital and resource devoted to the scheme is correctly allocated given the competing demands of the business and the shareholders.
In addition, the sponsor should consider how Integrated Risk Management (IRM) is being implemented and whether the sponsor agenda has been correctly reflected as part of the scheme’s IRM strategy. This includes ensuring that contingency plans to respond to adverse events must only reflect actions that sponsors would be willing to take (rather than simply assume that they are taken).
Over the years we have advised many sponsors, working collaboratively with trustees and other advisors to deliver better outcomes. Please get in touch to find out how we can help you.