Boardroom focus on pensions rises with stronger funding
Senior corporate decision makers are devoting more time to pension management as stronger funding levels and evolving regulations complicate boardroom strategies, according to a recent report from the Independent Governance Group. The study of UK CEOs, CFOs, and senior pension decision makers found that 81 percent had seen an increase in the amount of C-suite and board-level time spent on pensions over the past five years. More than a third of respondents said this dedication to pensions had increased significantly. While IGG noted that improved funding levels may be expected to reduce the amount of time spent on defined benefit pensions, this had only been the case for one in twenty CFOs.
Amid strong funding conditions, many firms are now considering a wider range of strategic questions around surplus release and the long-term value their DB schemes can create, rather than focusing primarily on managing deficits and reducing risk. Two fifths of corporate decision makers saw their pension scheme as a source of future value if it remained fully funded, compared to 22 percent who primarily viewed it as a risk to be removed. Meanwhile, 43 percent described their scheme primarily as a valuable way of rewarding current and future employees.
However, IGG noted that this greater range of options brought more complexity, which was creating an additional burden. Nearly two thirds of corporate decision makers said their pension responsibilities created pressure or concern within their role. A quarter cited future or regulatory change as a concern, while around 20 percent stated they did not have sufficient advisory or governance support, 15 percent do not have the time or capacity to get into the detail, and one in six do not fully understand the organization’s options. The analysis also highlighted an emerging confidence gap among sponsors, with 29 percent feeling less equipped to assess how DB scheme surpluses can be used. The same proportion cited understanding regulatory expectations and changes as an area of uncertainty. Just 4 percent said there were no areas of pension scheme management they felt unequipped to assess.
Related: Disputes Over Surplus Assets On The Rise
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. Retirement savings clarity is becoming harder to achieve as these options multiply.
Independent Governance Group released its findings in a report titled The Pensions Balancing Act. The outlet presented data showing that 81 percent of UK CEOs, CFOs, and senior pension decision makers had seen an increase in the amount of C-suite and board-level time spent on pensions over the past five years. More than a third of respondents said this dedication to pensions had increased significantly. While IGG noted that improved funding levels may be expected to reduce the amount of time spent on defined benefit pensions, this had only been the case for one in twenty CFOs.
