Our client is the Trustee Board for one of the top 15 pharmaceutical companies in the world. Increasingly disillusioned with the poor service provided by the previous Scheme Actuary, as well as the excessive pricing, things came to a head when the Scheme Actuary left his company and there was no clear proposed replacement. No one was actually doing the job.
With time ticking due to the legislative need to appoint someone new within three months and to conduct a full actuarial valuation within the next few months, the Trustees turned to John Herbert and his team at Premier to take on this requirement and provide Actuarial Services going forward.
Our first task was to review and identify any required work that had not been undertaken over the past three or four months. In fact, this revealed several issues for us resolve – some of which dated back over several months. Nonetheless we were able complete this work prior to the valuation process getting underway.
Next began the valuation process itself and the first steps were to discuss suitable assumptions with the Trustees and agree a range of scenarios or options which needed to be investigated as part of the valuation process. One particular concern was the timing of the valuation which coincided with a sharp fall in the level of equity markets and also an increase to the liabilities as a result of falling yields on Government Securities – which could (temporarily) increase the reported deficit.
Once the number crunching had been completed, the initial outcome was unacceptable revealing a significant increase to the deficit resulting solely from the changing economic conditions. Consequently, we re-examined the assumptions and scenarios and looked at other acceptable outcomes taking into account not only the position at the valuation date but also the subsequent realignment of economic factors.
The revised position was discussed with the Employer – who then took advice form its own consultants. Further negotiation and discussion with the Employer then enabled a settlement to be reached and implemented reasonably quickly and well within the Regulatory timescale of 15 months.
Following the valuation, the Trustees and Employer agreed that more frequent monitoring of the funding level was required and a process of reporting the funding position every three months was implemented – ensuring that there were no nasty surprises at future valuations.
Fast forward three years and we’ve just begun the next valuation process. Continued market pressures outside anyone’s control such as the Government’s quantitative easing process and the threat of a Eurozone collapse mean that economic conditions are even more challenging than three years ago.
Not only this, but between valuations the existing scheme was closed to existing members. Much of our work over the last twelve months was around that closure process. The Employer put forward proposals for a replacement scheme but these failed to adequately protect the interests of the contributing members – and failed to recognize that the existing custom and practice would treat employees quite differently once they were no longer contributing to the Scheme.
For example, the Scheme generally consented to allowing contributing members close to retirement to take their pension with no reduction – benefits which would be lost if the Scheme was closed. This was clearly unfair, particularly for those close to retirement. We agreed an improved position, where members would be able to take advantage of early retirement even though they weren’t building up benefits, as long as they were still employed.
We were also able to reach an improved settlement in respect of death benefits which recognised that these benefits would be curtailed on closure. In summary, we negotiated an improved position ensuring that members’ dependents would not be disadvantaged as a result of the closure.
And finally, the Employer is now prepared to pay in significantly more money into the new pension arrangement than they originally proposed without requiring employees to increase their contributions from the current levels.
Overall, our skillful negotiations not only improved and protected the benefits which had already been built up but also improved the long term retirement expectation under the new pension arrangements.
“Actuarial Services are a largely commoditised market, where many businesses buy mainly on price. However, it’s the other things that really make the difference – strong service, great personal relationships and a determination to get the best possible outcome. Premier Pensions Management is second to none in these areas. That’s why we chose them in the first place, and why we continue to work with them, not to mention their very competitive pricing structure.”