Boardroom executives are now twice as likely to see DB pensions as a valuable asset, rather than a financial burden, according to research from Independent Governance Group.
The trustee firm has found that C-suite executives now spend more time discussing company pension when compared to five years ago, thanks to the stronger financial position of many DB schemes.
Its report, The Pensions Balancing Act, found companies are spending increased time and money on pensions, in light of more complex regulations and decision-making around surplus funds.
The survey of CEOs, CFOs and senior pension decision-makers found that 81 per cent of said that company boards had increased the time spent on pension in the past five years, with more than a third (37 per cent) saying this had increased significantly.
IGG also found that 40 per cent of decision-makers view their pension scheme as a source of future value, compared to just 22 per cent who view it as a risk to be removed. Meanwhile, more than two in five (43 per cent) describe their scheme primarily as a valuable way of rewarding current and former employees.
IGG points out that a greater range of options brings additional complexity and this is creating difficulties for some C-suite executive. Its research found that almost two-thirds of corporate decision-makers (62 per cent) says that their pension responsibilities create pressure or concern within their role.
Future legal or regulatory change is most commonly cited as the main problem, identified by one in four (25 per cent) decision-makers, while more than one in five senior decision-makers state they don’t have sufficient advisory or governance support. Meanwhile 15 per cent said they do not have the time or capacity to get into the detail, and one in six don’t fully understand the organisation’s options around DB.
There is also an emerging confidence gap among sponsors. Three in ten (29 per cent) feel less equipped to assess how DB surplus could be used. The same proportion identify understanding regulatory expectations and changes as an area of uncertainty.
Overall, just 4 per cent of these decision-makers said there were no areas of pension scheme management they feel unequipped to assess.
IGG trustee director and head of strategic pension solutions David Farmer says:“For many years, pensions were something boards hoped would require less attention over time. The opposite is now happening. Better funding has expanded the number of strategic options available to sponsors, but it has also created more difficult decisions.
“For years, the challenge for many CFOs was relatively easy to define, even if it was difficult to solve: fund the deficit, manage risk and work towards a long-term objective.
“Improved funding has changed that equation, and buyout as soon as possible is no longer the default option. Sponsors and trustees now have a wider range of credible options available to them, but that makes decision-making more complex rather than less. Success increasingly depends on strong governance, effective sponsor-trustee collaboration and access to the right expertise.”
