We provide a regular funding and investment monitoring service to the trustees of a £40m scheme whose employer is in the property sector. This monitoring service allowed the trustees to identify that the deficit of the scheme was becoming large relative to the amount of cash that the employer was generating, which caused the trustees some concern.
The trustees therefore asked us to review the funding and investment strategies of the scheme, in particular with a view of reducing the risk of the deficit increasing further.
"We assisted the Trustees in establishing performance-related contributions, allowing the scheme to benefit from the success of the business."
We advised the trustees to increase the level of interest rate and inflation hedging using leveraged Liability Driven Investment (LDI) through pooled funds – an emerging opportunity at the time for schemes of this size. This gave the trustees the downside protection against falling interest rates that they desired whilst maintaining some growth asset exposure.
On the funding side, as part of the 2014 valuation resolution we assisted the Trustees in establishing performance-related contributions as part of the Recovery Plan agreed with the sponsoring employer, on top of the contributions required to pay off the deficit. This allowed the scheme to benefit from the success of the business, without overly constraining the employer’s growth by increasing the fixed contributions burden.
We also help the trustees agree a memorandum of understanding was drafted as part of the resolution of the 2014 valuation to set expectations for future valuations and actions to be taken if the deficit worsens further.
The change in strategy we proposed has proven effective and has resulted in the scheme being in a much better funding position than it would have been otherwise. The performance related contribution structure has resulted in contributions of £240,000 being paid so far, helping to reduce the deficit. Finally the memorandum of understanding will help to make future valuation negotiations a more straightforward process, helping to complete the valuation more quickly and reduce advisor fees.