A common purpose
It is essential to have a strong working relationship with the
trustee group – we ultimately have a common objective. There
may be points of disagreement along the way but we need to
stay aligned for as long as possible on the journey to sufficiency.
Alan Williams, CFO, Greencore Group Plc
50%
of CFOs either disagree or are unsure whether their
trustee board shares their goals
As the old saying goes, a problem shared is a problem halved.
That’s why we wanted to find
out how involved CFOs are in the
management of DB schemes, and
how effectively they are working
with their trustee counterparts.
Our findings suggest that, for some, greater collaboration
is needed. Without a common purpose, CFOs and
trustees will struggle to implement changes they want
for their scheme, and any resulting strategy is unlikely to
stand the test of time.
Why aren’t CFOs and trustees
collaborating more closely?
With one in seven CFOs stating the DB scheme is one of
their firm’s biggest risks, you’d think it would be high on their
agenda. However, CFOs have many responsibilities and
time is an issue. Focussing on the growth of the underlying
business is probably why they took the job, rather than
managing the run-off of a legacy benefit promise.
59%
of CFOs agree they need to spend more time
on their DB scheme
With DB schemes proving to be many times more
expensive than anyone ever imagined, we expect CFOs to
take a more active interest. Trustees have a legal duty to
put members’ interests first and CFOs have an obligation
to prioritise the interests of shareholders. It’s no wonder
that sometimes trustees and CFOs can feel as though
they are on different sides.
This sounds like there is insufficient communication
between the trustee board and the CFO. There must
be alignment on the key objectives. It is hard to believe
that anyone would want to renege on the ‘pension
promise’ made to members, but of course the ideal
position for trustees would be to see the scheme
funded quickly, and to a higher level, than the sponsor
would like.
John Chilman, Group Reward & Pensions Director,
FirstGroup plc
There is one area where CFOs and trustees would agree it’s in no one’s interests for the pension scheme deficit to
become unaffordable. It destroys shareholder value, jobs,
and members lose out on their pension benefits. The good
news is that, more often than not, CFOs feel trustees are
doing a good job of managing pension schemes.
67%
Believe trustees are doing a good job
so management of DB scheme
not currently a concern
However, given the ever rising deficits over the past 15
years, are they being too optimistic? DB schemes are
clearly on their minds, but does a lack of time compound
the issue? Juggling priorities is clearly a challenge for
overstretched CFOs.
37% of CFOs have low
or very low confidence
in trustees’ strategy to
achieve targets
32% think there is a high
or medium risk of trustees
asking for more cash than
already agreed
CFOs and trustees can pool their different perspectives and
expertise. As experienced problem-solvers and financial
risk managers, CFOs have a lot to offer.
59% admit more pressing
issues demand their
attention, so DB scheme
doesn’t get the attention
it deserves
Having an agreed common goal and strategy will help
CFOs and trustees to feel on the same side.
Moreover, working towards a common goal together will
mean fewer surprises.
On the point about understanding the objectives of
sponsors and trustees, I think insurance company
sponsors tend to better understand whether objectives
of the trustees and the sponsors differ. A classic
example is that in investment risk, the insurance
sponsor runs to a one in 200 event over the next
12-months whilst the trustee’s investment advisers tend
to consider investment risk over the entire period of the
scheme to run-off.
Philip Moore, Group Finance Director, LV
The survey
Hymans Robertson commissioned YouGov to conduct
a survey of Chief Financial Officers (CFOs) that have
defined benefit pension schemes. YouGov interviewed
51 CFOs over the telephone from 11th January to 22nd
January 2016. The CFOs all worked for UK businesses with
more than 1,000 employees.
CFOs often find that if they work more closely with trustees, they’ll be able to avert the need for higher cash contributions
by putting in place a more stable funding agreement.
In general we think the industry can do better in three key areas, as set out below. By doing so we’re sure CFOs and trustees
will be able to work successfully towards achieving a more resilient pension scheme.
Purpose
Clear objectives that are agreed with
trustees help companies influence
pension strategy.
Pace
Schemes should take no more
risk than they need. The risks are
asymmetric for sponsors; they get no
access to upside, and shareholders
meet the cost of downside.
Precision
London | Birmingham | Glasgow | Edinburgh
We are advocates of a fully integrated,
risk based approach to pension
scheme risk management. If you’d
like to chat about how this could help
your scheme, in particular achieving
a common purpose between trustees
and sponsors, please get in touch.
Schemes shouldn’t use data that can
be over three years old for making
such important financial decisions.
Jon Hatchett
Partner and Head of Corporate
Consulting
T 020 7082 6167
E [email protected]
@jhpensions
Coming up
Look out for our next chapter where we
explore CFOs’ attitudes towards
de-risking and the numerous ways
schemes can chip away at their risk.
Time to work towards a
common purpose?
29%
15%
CFOs targeting
buy-out
Trustees targeting
buy-out
Calum Cooper
Partner and Head of Trustee
Consulting
T 0141 566 7837
E [email protected]
@Calum_Cooper
T 020 7082 6000 | www.hymans.co.uk | www.clubvita.co.uk
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