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Case Study 1
PRA's first client, a rapidly growing and diversified FTSE 350 plc, had identified a major strategic business risk arising from particular groups of employees who retained defined benefit (DB) pension arrangements. The projected liabilities amounted to between 160% and 200% of the Company's market capitalisation. In four different pension schemes, the affected employees included Executive Directors, and a large number of senior and middle management members who were key to the business.
Over a period of several months Pension Review Associates assisted in developing a strategy that satisfied the company's objectives that were to:
- Close the DB schemes to future accrual,
- End the link to final pensionable salary, and in effect make all active members become deferred members, and;
- Put in place an attractive defined contribution (DC) alternative.
Working with the client company's actuaries, legal advisors, communication specialists and pension scheme administrators, PRA developed a project plan to deliver these objectives.
Although headed by the Group Head of Compensation & Benefits, as Project Director, the project was delivered by Pension Review Associates, as many key HR and line managers were conflicted by the proposed changes.
The key project deliverables included:
- Full discussion with all pension scheme Trustees,
- Full compliance with all statutory employment requirements, Corporate and Trust governance, Pensions Regulations, Scheme Rules, and, of particular importance, the company's ethics and values,
- Creating a full database of active scheme members, on 3 continents, and using this to:
o Evaluate future DB cost exposure,
o Evaluate future risk exposure, and;
o develop potential DC alternative schemes at equivalent or lower costs,
- Assisting the Project Steering Committee in securing full Board approval for the project,
- Developing appropriate scheme detail, including Scheme Rules, for the new DC arrangement
- Communicating the proposed changes to affected employees, using written and verbal channels that included a dedicated helpline and intranet site to answer affected employee queries,
- Conducting a complex formal joint collective consultation with affected employees, (concluded with elected employee representatives unanimously signed up to the proposed changes). The consultation process was complicated not only by the number of affected schemes, but also by the fact that an unknown number of employees had contractual rights to a DB Scheme. Consultation was therefore conducted consistent with both the Pensions Regulations, and the Employment Rights Act,
- Making appropriate changes to several payroll platforms,
- Liaising with the Scheme's administrators to close the existing DB schemes, set up a new Trust and suitable pension administration processes to accommodate the DC scheme,
- Facilitating advice and answering queries on applying and to the new DC scheme, resulting in 97% of employees joining the new scheme in a planned 6 week joining period, and;
- Ensuring that the entire process was conducted in such a way as to avoid the risk of triggering a Section 75 debt.
The project, once approved by the plc Board, took just less than a year to complete, was delivered to planned timescales and within the project budget. Less than 0.1% of the affected employees entered a formal grievance over the changes. It resulted in very significant group balance sheet benefits, through a 'curtailment gain' that was roundly 20 times the total project cost, and eliminated a major strategic risk for the client.
Case Study 2
PRA has recently completed another successful project. The client had identified a significant strategic business risk arising from a group of employees who, although their occupational pension scheme was closed to future accrual, retained the link to final pensionable salary. The situation was further complicated by 3 issues:
· It was a multi-employer DB scheme and some of the employers had less than 10 members, giving rise to the real risk of a Section 75 debt being triggered,
· Members had previously been granted a contractual right to the link to final pensionable salary, and;
· Some members of the scheme were active members of a (Public Sector) section.
Pension Review Associates, working with the client, developed a strategy that satisfied the company's objectives, which were to:
· End the link to final pensionable salary, and in effect make all members become deferred members,
· Transfer active (Public Sector) section members to an alternative (GAD approved) arrangement and;
· Put in place a revised (attractive) defined contribution (DC) alternative.
PRA developed a project plan to deliver these objectives.
The key project deliverables included:
· Full discussion with scheme Trustees,
· Full compliance with all statutory requirements,
· Managing the election of employee (member) representatives,
· Consultation with member representatives,
· Securing members written agreement to the proposed change,
· Compliance with the company's ethics and values,
· Creating and validating a full database of scheme members and;
· Developing a DC alternative at equivalent cost,
Pension Review Associates achieved a successful outcome, it:
· Developed appropriate scheme detail, including Scheme Rules, for a new DC arrangement
· Communicated the proposed changes to affected employees, using written and verbal channels that included a dedicated helpline and intranet site to answer affected employee queries,
· Conducted a complex formal collective consultation with affected employees,
· Secured the written agreement of all members to the proposed changes,
· Made appropriate changes to several payroll platforms, and;
· Ensured that the entire process was conducted in such a way as to avoid the risk of triggering a Section 75 debt.
The entire project was completed (on time and within budget) with no grievances, no terminations and no industrial action.
The client achieved a successful outcome:
· A substantial ‘curtailment’ gain,
· A significant reduction in future liabilities,
· No Section 75 debt triggered, and;
· No industrial relations problems.
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