“They deliver above expectation when the scheme has a particular challenge.”
“Highly informative. Having leading professionals deliver the TKU course really adds value.”
“Thanks for all your help!”
“I wanted to look at the effectiveness of our trustee board, so Gillian, our PSGS scheme secretary, provided their trustee self-assessment tool to help me gather thoughts and opinions from others on the board. The tool was extremely easy to use and asked all the right questions to help me collect the information I needed as Trustee Chair. It is a great example of the way PSGS shares knowledge with their clients and makes dealing with key governance issues easy. As well as enabling me to meet one of the Regulator’s 21st century trusteeship requirements, using the tool has flagged trustee training needs and ways we could improve trustee meetings further. ”
“In my experience, not all professional trustees are able to cope with tricky or potentially confrontational situations. I find PSGS has massive experience in getting involved, earning the respect of others and resolving such issues. They get stuck in – they are a first rate team.”
“Many organisations and people provide the services that clients need. In my opinion, the differentiator is in the way those services are provided and to that extent, Kathy embodies the qualities that I have come to value from PSITL. Kathy is organised but not fussy; diligent but not dogmatic; persistent without being pushy and compliant in a pragmatic way. Whilst she takes ownership and drives issues forward, Kathy is a team player who uses her and her colleagues experience to provide services to her trustee client whilst working closely with those like me representing the sponsoring employer. She works collaboratively with advisers but constructively challenges the scope of services, fees and service standards whenever necessary and makes sure that member needs are always taken into account. I enjoy working with her and trust that she will deliver what is required by the trustee and the members they represent in a manner satisfactory to the sponsoring employer. ”
One of the most difficult situations a pension trustee can face is where the scheme sponsor is distressed, meaning the risk of insolvency is high. Trustees owe a fiduciary duty to act in the best interests of pension scheme members but, as insolvency results in job losses as well as reduction in shareholder value, avoiding it is a good thing for members, employees and sponsors.
Events can move rapidly
The pension scheme itself may not be the cause of the distress but it is often a factor. For many schemes, liabilities have risen faster than assets over recent years leading to substantial funding deficits.
Pension trustees should regularly monitor the covenant the sponsor provides to the scheme but events can sometime move with alarming rapidity when cash is constrained. Professional trustees are often appointed when the position has already become critical. We’ve seen the whole range of scenarios and enabling the best outcome for members and sponsors is rarely straightforward.
It can seem like a vicious circle
If not already in place, they should obtain independent covenant advice to confirm the position. If the sponsor defaults in relation to the existing Schedule of Contributions or it is not possible to agree a valuation within the statutory deadline, the Pensions Regulator must be informed. It may be necessary to write to pension scheme members so they are aware of the position.
It may be possible for the scheme to continue with reduced contributions and a longer recovery plan. You may also need to reduce the amount of risk being taken in the investment strategy and to increase the prudence loading in the funding assumptions to reflect the weak covenant. These measures will in turn increase the deficit so it can seem like a vicious circle and the question will arise – can the deficit ever be paid off?
Try saving both the pension scheme and its sponsor first
If the ultimate destination for the scheme is the Pension Protection Fund (PPF), they would often prefer the scheme arrives at their door sooner rather than later. They’re not keen on ‘PPF drift’, you see (over time, more members move from deferred to pensioner status and become entitled to higher levels of PPF compensation).
If this isn’t a material issue and the dividend the pension scheme would receive from an insolvency is not eroded by the passage of time, two barriers to continuing the scheme are removed. If the scheme and sponsor can survive, they may benefit from more helpful financial conditions in the future and the sponsor may have the time it needs to turn its business around.
One of my clients - a UK manufacturing business - is a good example of this:
We assessed the proposed covenant as being unlikely to be able to support the pension scheme over the longer term unless financial conditions were especially positive. Robust negotiation resulted in several different proposals from the employer group before we agreed the trade and assets would be retained in the sponsor together with the property and rental income from a connected tenant.
The result was a viable recovery plan and completion of the 2016 valuation on a basis acceptable to tPR. The scheme and sponsor both continued.
It can be done!
5 Dec 2019
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27 Nov 2019
Watch 'The pros & cons of sole trusteeship' on Vimeo Read the sole trusteeship case study
6 Nov 2019
This regulated apportionment arrangement (RAA) case study looks at one of the most complex distressed employer pension cases we’ve seen. It...