The pensions landscape has evolved over the past 20 years as the cost of providing a defined benefit (DB) pension scheme has risen. Falling bond yields and increasing life expectancy have driven up costs by more than 500% since the mid 1990s.
We have seen a clear shift in how UK companies provide employee pensions, with defined benefit arrangements replaced by defined contribution (DC) schemes, or re-designed to reduce cost and/or risk.
There are a number of potential barriers to pension scheme change and re-design, but our experiences is that these challenges can typically be overcome with a well-thought-out strategy and sufficient planning in advance.
Employee engagement is crucial as change is implemented. We work with schemes and sponsors to understand how employees will react throughout the process and to shape the communication strategy accordingly. We find this builds trust and helps employees through the change process.
Industrial action is often the result of a breakdown in communications, whether over pensions or wider issues, and we help clients reduce the likelihood of that happening.
It is critical to properly engage with unions and employee representatives to ensure they understand the reasons for the pension changes proposed, as well as the consequences of not taking action, which could be reduced competitiveness, job losses or even site closure. A key learning is that employee readiness to accept change increases as their awareness of the situation increases.
We have worked with companies that have engaged with unions at a very early stage to help shape the proposals before going to consultation to achieve greater buy-in.
The pension scheme rules can be a barrier to change, either by restricting the power to change the scheme or by crystallising other negative outcomes (such as an employer debt). We work with companies to review scheme rules and employment contracts in order to establish the most suitable route for change.
PwC is uniquely placed to advise on scheme change projects because we bring together our own specialist pensions consultancy, actuarial and legal teams to form one, complete offering for our clients. This holistic approach enables our clients to focus on achieving their objectives rather than being distracted by having to manage multiple advisers.