In amongst client work and the various networking events I attended last week, I had an interesting conversation with a finance director of a family owned business who, in my mind, has managed to get themselves into a very nice, independent but influential position with regards their final salary pension scheme.
Quite often, I find that finance directors (and business owners) sit on their pension scheme’s trustee board, with the situation coming about for one or more of the following very valid reasons:
- The finance director can add a huge level of financial literacy to the trustee body and having her or him on the board allows it to make better-informed decisions;
- There’s a sense that there’s less duplication of effort in having the FD or business owner’s views ‘in the room’; and
- The views of the company and the pensions’ trustees align.
This operating model is one that used to work ok, but not so much now.
We live in an age where the interests of the business and the trustees do not align. The primary concern of the business is likely to be a healthy combination of people v planet v profit, with the agenda of the trustees being to ensure pensions are paid as they fall due, with a bit of people and planet.
The first thing to say is that striking the balance between these two related, but differing, outcomes is something that requires the finance director and business owner to assert their independence, without losing their influence. This may be as a trustee, putting a very different hat on, or it may be in a role outside of the trustee body, where it is arguably much easier to strike a balance,
The DWP’s recent DB scheme publication is a sharp awakening to what can go wrong. The Government has committed to legislate to make it a criminal offence to punish those found to have committed willful or grossly reckless behaviour in relation to a pension scheme. The Government is also giving The Pensions Regulator (TPR) powers to disqualify company directors, and introduce new punitive fines. Not for the faint-hearted.
Over time, however, an organisation’s strategy should continue to evolve and not be constrained by its pension scheme, as should the scheme not be constrained by its sponsor. Working together is key and having time to discuss those positions is going to be essential for the business and the trustees.
For the independent, influential sponsor, finance director or business owner, presenting the company’s views ahead of a trustee meeting and then formalising it at the meeting is a great way of ensuring buy-in from the trustees when changes need to be made. This retains influence within a strong independent structure.
In practical terms, around six to eight weeks prior before a trustee meeting, there is an obvious window for taking stock and considering your position. Being in that nice, independent but influential position helps….