Operational Strategy
| Efficient Investing | Governance | Administrative Support and Consultancy |
Efficient Investing
The investment strategy of a pension scheme impacts the volatility of the funding deficit and hence deficit contributions.
Liability Driven Investment
Liability Driven Investment (LDI) involves analysing benefit cashflows and finding assets that match these to reduce risk. We work with companies to decide whether LDI should form part of their pension scheme investment strategy, then assist with implementation.
LDI considerations
Beyond investing in bonds to match the liabilities, there are a range of alternative assets which can be used to reduce the risks associated with a scheme’s liabilities. For example, derivatives can be used to hedge against the risks of mortality, inflation or interest rate assumptions not being borne out in practice.
LDI can reduce the volatility of future funding deficits, as well as increase the stability of cashflows. However, as it can be expensive to implement, we work closely with companies to ensure that LDI is an effective solution to the pension scheme.
Governance
Pension pooling
Pension pooling allows different international pension funds to ‘pool’ their investments. This is achieved through each pension fund investing into a single pension pooling vehicle (PPV). The PPV then invests into the underlying investments (global equities, bonds, cash etc) on behalf of the pension funds. This structure could significantly improve the risk management and governance of companies’ pension schemes.
In our experience, companies who implement pension pooling can realise the following benefits:
- Risk reduction through increased diversification of managers
- Lower transaction costs and reduced management fees
- Better control over manager and custodian selection
- Increased revenue from securities lending/commission recapture
- Enhanced reporting from a single global custodian
Occupational pension schemes
Governance of occupational pension schemes (both defined benefit, defined contribution and hybrid schemes) tends to be more prevalent than for contract based schemes. With training now mandatory for pension scheme trustees to demonstrate that they have sufficient level of knowledge and understanding, this makes the need for good governance and robust policies vital to support this requirement.
We provide support to trustees in meeting their requirements around trustee knowledge and understanding. This helps trustees achieve and maintain a basic level of competence, understand how to deal with conflicts of interest and breaches of the law, the importance of establishing internal controls and keeping scheme documentation up to date.
We also work with companies and/or Trustees to review their pension scheme policy including their approach to funding, investments and administration. Our approach is to carry out due diligence on existing procedures including discussions with individual trustees, undertake a gap analysis versus best practice guidance (taking into account the specifics of the scheme) with the overall aim of developing a comprehensive and robust governance plan that is fit for purpose.
We constantly look at market opportunities and innovative ways of adding value to our clients’ portfolios. We have advised clients to take advantage of market opportunities to enhance returns, as well as to alter their investment policies to avoid potential market bubbles.
Administrative Support and Consultancy
We advise companies on various aspects of administration arrangements including redesign and automation of processes, data verification and transition management and we can provide a full review of the control environment to ensure legislative compliance.
We can support you to ensure your pension schemes are run efficiently, cost effectively and in a way that will identify and manage risk.
Our administration consulting services also include:
- Periodical quality review of existing administration and assistance with strategies to implement any changes to enhance the effectiveness and efficiency of the company pension budget
- Internal review of current provider’s processes and charging structures and benchmark against current market practice
- Assistance with deferred member exercises to reduce the administrative burden of maintaining former member records
- Independence support with tender process