Home > News > 2005 > August 2005 > Looking After Employers
Looking After Employers
Pensions are a valuable benefit for employees, and an important part of an attractive remuneration package. However, it has been hard going for some employers over the last few years and sometimes these employers need someone on their side, providing them with specialist advice and looking after their interests. Here, London Partner, Danny Wilding, describes how Barnett Waddingham LLP can help employers.
What advice can Barnett Waddingham LLP provide employers?
The most obvious area is helping to design a new pension arrangement or benefit structure which meets the needs of the employer and its workforce. Changes to existing final salary schemes will usually require the consent of the trustees and so the employer may need to negotiate with the trustees in order to reach a mutually satisfactory outcome.
Doesn't this give rise to conflicts of interest?
Barnett Waddingham LLP takes a robust line in relation to conflicts of interest - we will not advise an employer in a situation of conflict if we advise the trustees. We do not try and fudge the issue by operating 'Chinese walls' - if one partner is conflicted then Barnett Waddingham LLP is conflicted.
Does this mean that employers only need advice when they are making changes to their pension scheme?
Not necessarily. It is important for the employer to understand the ongoing balance of powers between the trustees and employer, particularly in relation to setting the contribution rate. In most cases, the new scheme-specific funding legislation requires a contribution rate to be agreed between the trustees and employer. This means that the employer needs to understand the implications (and sensitivities) of the method and assumptions used for the actuarial valuation in order to have an informed dialogue with the trustees.
In addition, "risk management" is a key issue for many final salary pension schemes and the employer should be proactive in working with the trustees in order to control and manage these risks. Winding-up is not an option for many closed final salary schemes and so "winding down" (gradually reducing the risks over a period of time) is becoming increasingly important.
What is the most important aspect of this work?
Establishing a good working relationship with the trustees of the pension scheme. Managing a pension scheme (even a closed scheme) is a partnership approach. The trustees need a committed employer prepared to fund the pension scheme but the benefits provided by the scheme also need to be affordable. Both parties need to understand each other's position and the risks involved.
What other help can Barnett Waddingham provide employers?
We have significant expertise in the area of UK and international accounting standards for UK companies and those with overseas parents; our annual survey of FRS17 assumptions is now in its fourth year. We often help employers find the best accounting options and can assist in the management of balance sheet volatility and disclosure. In addition, our flexible calculation system enables us to complete calculations under all accounting standards (FRS17, IAS19 and FAS87) at short notice.
Any particular success stories?
A common problem can be high levels of fixed pension increases and fixed deferred pension revaluation which is disproportionately expensive in a low inflation, low interest rate environment. For one client we helped the company negotiate with the pension scheme trustees and the individual members in order to restructure benefits so that they carried less onerous future increase promises. As a result, both pension scheme and employer now enjoy greater financial security. However, any situation where our advice helps the employer get a better understanding of pension scheme financing and risk management is a success story.
Danny Wilding, August 2005.