Slow and steady? Pension deficits need not be closed as report reveals trustees need to refocus

Oliver Gill
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Getting bogged down in the detail isn't helpful, experts warned (Source: Getty)

Spiralling pension deficits are distracting those empowered to manage schemes away from making sure members receive the correct payouts.

Almost all pension trustees do not see paying members as a key strategic driver, with many getting bogged down in the detail and failing to see the bigger picture, according to a report by actuarial specialists Hymans Robertson.

“Given the purpose of a pension scheme is to pay pensions, it is surprising that this is not the key strategic driver for 99 per cent of trustees," said Calum Cooper, the head of trustee defined benefits at Hyman Robertson.

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Pension deficits ended 2016 at record highs, weighing on both the finances and operations of some of the UK's largest firms.

Royal Mail has opened a consultation to close its mammoth scheme amid concerns it could cost the firm £1bn a year to keep it open after 2018 – unions have warned industrial action could be on the cards if they disagree with the closure.

Meanwhile, BT is preparing to go into battle with trustees overs if near £10bn pension gap and BHS' pensioners are still yet to find out who will fund payouts following the retailers collapse last year.

However the research revealed more than half of trustees felt schemes could benefit from a "slower and steadier approach", giving companies a longer time horizon to close deficits.

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Cooper added: "When it comes to strategy, the industry still relies on volatile balance sheet deficits and discount rates. Focusing on these in isolation clouds the issue of how best to secure members’ pensions.

Clearly trustees are still being advised to focus on the deficit position. While it is important, it should not be the primary driver of strategy.

Yet discussions about technical matters like discount rates and inflation risk premiums perpetuates the deficit problem as it focuses time and effort in the wrong places.

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