In Vogue Defined Benefit Pension Products – Is it a product? Is it a service? Is it advice? (sadly it is not a superhero coming to solve all Scheme woes!)
Ten years ago, much of the Irish Defined Benefit Pension universe was in the throes of section 50’s, funding plans and de-risking glide paths. Today the vernacular has progressed to de-risking strategies, buy-in’s, buy-outs and longevity swaps but what has really changed, and is it better or worse for members, trustees and sponsoring employers.
For many DB pension schemes the focus of the trustee board over the past decade has been on repairing deficits and keeping heads above water. Some boards today are finally in a position to start looking forward. But the focus of discussions should be completely unchanged – Paying members their promised pensions when they fall due.
There will always be new products and services to understand and evaluate, however complexity is definitely increasing and the range of possible outcomes from some new products can at times be opaque. Although the promises of some of these new products are enticing – reducing risk, securing benefits etc, they can be expensive (and incur auxcillary costs on actuarial and advisory work) which will have a negative impact on member outcomes. Trustee boards and sponsors need to be clear on their goals and objectives before spending trustee time considering product purchases.
It is also important to note that these new products require a different approach from trustee boards towards initial selection and ongoing management– success depends upon collaboration between trustees and sponsors – something which there may not be a precedent set for in many schemes. Today’s products are very much about balance sheet exposure and therefore sponsor input is key (in many cases should be the driving force).
Where to start when evaluating these types of products/ strategies?
With a clear articulation and understanding of your scheme members. It may seem obvious for many but in practice for most it is neglected.
What to expect and look out for?
- It will take time, and should be given time.
- The recognition of the difference between product, service and advice should be carefully navigated.
- Remember outcomes need to be clearly defined and focused upon at every decision point.
- An independent advisor (with no conflicts or ties to product sellers) can guide trustees and companies efficiently and effectively through these discussions.
If you would like to speak with a member of our team on any of the above please call me on (01) 634 4510 or email me at EdwardOH@acuvest.ie