GLOBAL - Companies with pension arrangements in several countries have been advised by Lane, Clark & Peacock to consider potential changes to funding levels and terms at local schemes based on the overall benefit it will bring to the company, and look at shifting from one country to another if it will lower the overall risk pressures.
Speaking during LCP’s global pensions briefing in London earlier this week, Shaun Southern, partner and head of international consulting at Lane, Clark & Peacock, noted multi-national companies are struggling in some cases to keep up with regulatory and funding developments and the flexibility to make changes during the downturn.
It is therefore advising firms to exploits openings in the rules and regimes of other nations if it takes the pressure out of the company’s cash flow and prevents problems further down the road.
“You have to decide your priorities on pensions. But if you have 61 countries with pension plans, you can’t look at them all,” said Southern.
“The Netherlands is pretty difficult to influence in terms of cash, because the rules dictate what you can do. But in Ireland and Belgium, for example, is where there is flexibility on the funding regulations, and how much is put into them.”
Clay Lamboitte, partner of the investment practice at LCP, also suggested firms looking to reduce their overall risk might want to consider the impact reducing risk within a single country could do to the overall scheme, as making changes without adding additional cashflow could improve investment gains elsewhere.
“If you have to reduce risk by 40%, you may find you have to reduce expected returns. Instead, you may prefer to reduce the risk in the Netherlands, for example, because often the benefits are indexed to the returns. So you may want to shift your risk from one country to another to gain the upside,” said Lamboitte.
Further into the presentation, Southern noted larger corporate players have also found that establishing what the corporate’s objectives and priorities are in terms of pensions delivery has made it easier for local plans to establish the funding required, because guidelines have been set down ahead of any local negotiations with interested parties.
Interestingly, LCP said firms with schemes in Ireland, for example, might want to consider placing additional capital in their plans now while the regulation is relatively loose on the matter.
At present, there is nothing to state firms must put regular cash sums into their pensions, and how much, according to LCP’s Conor Daly, but that could change soon, so firms might be wise to put additional into their schemes, if they can afford to do so.
“What the government has done is pretty limited,” said Daly.
“It is a chance for trustees to buy pensions at an not-for-profit basis. The big issue for sponsors, and the likelihood of more regulations, is the introduction of some debt on employer legislation, and it will happen overnight. It means they can’t walk away. The balance of power will shift fundamentally from employer to trustee.
“If you have an Irish division, it is an unique opportunity to do something while regulation is still on one side. We advise you get a handle on your pensions risk now, rather than being sorry later,” said Daly.
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