Pensions are in turmoil. The Government, media, UK boardrooms, unions and workers (that is, tomorrow's pensioners) all agree. Pensions now influence every facet of daily corporate life - especially for those UK companies with defined benefit schemes carrying a deficit - but they are not an insoluble problem. Regaining control over company pension schemes, and managing the costs and risks associated with them, requires holistic commercial thinking not just actuarial know-how. Some companies are looking at more innovative strategies to manage pension scheme funding, but many are still struggling to come to terms with their new and unwanted debt problem.
The effect the pensions deficit can have on transactions has taken many by surprise and stopped some deals in their tracks. The new Pensions Regulator has real teeth and employers and individual directors can be held accountable for any action (or lack of it) that reduces the security of a pension scheme.
Healthy dialogue is essential not just with the Regulator but with all key stakeholders - trustees, pension scheme members, unions, shareholders and lenders in today's new, more transparent, pensions environment. Conflicts cost money. If nothing is done to manage pension scheme risk, it can damage the share price and, consequently, directors' credibility and personal remuneration. Trustees, as well as the board, have increased responsibilities and risks, and are under increased scrutiny from stakeholders. There is renewed focus on pension scheme audit and how a high quality audit should be an integral part of effective scheme governance.
The new challenges facing directors and trustees require credit advisory skills in addition to the existing advisors. As one of the largest credit advisory firms in the world, PwC has a proven track record as adviser to negotiations involving trustees, employers and the Regulator.
Aside from dealing with the pensions deficit itself, many companies are also having to reassess the nature of their pensions promise to executives and the wider workforce, both at home and overseas. Employers need to balance inequities arising from the closure of defined benefit schemes and reassess the role that pensions play as part of overall reward in the employment deal.
Further spanners are in the works as employers now have to cope with new age discrimination and legislation.