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Impact Investing

IPE special report May 2018

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ESB's DC redesign enhances flexibility

The E6m ESB Subsidiary Companies Pension Scheme provides retirement benefits and protection in the event of death for employees of subsidiary companies of the Electricity Supply Board. A separate scheme provides benefits in the event of prolonged disability. The schemes were set up in 1991 to provide for the employees of ESB’s then newly established subsidiary company, ESBI and now have over 300 members, with annual contributions exceeding E1m. Retirement benefits are provided on a defined contribution (DC) basis, with death and disability benefits being insured.
During 2001 the scheme was reviewed and enhanced in order to meet a sizeable number of objectives: to improve the level of existing provision where appropriate; to provide a range of investment choices to meet the varying needs of members; to offer a full spectrum of choice which recognises that members’ risk/return characteristics change over time and members have different attitudes to risk and reward; to introduce a choice of fund manager for members; to make the scheme more competitive and flexibile; to ensure it is in line with best practice in the marketplace and complies with new pensions legislation; and to expand it to cover employees of the wider range of subsidiaries now established within ESB.
To achieve these objectives, ESB initiated an investment review. The trustees short-listed a number of investment managers, five of which were short-listed, including ESB’s incumbent manager. Following an analysis of their strengths and weaknesses a number of key decisions were made by the trustees.
Firstly, ESB decided to retain its incumbent manager but expand its product range to include a managed fund, a fixed interest fund and a cash fund. A new manager was selected to manage a consensus fund, a guaranteed fund and an all-equity global fund. A second new manager was selected to run a managed fund, an all-equity fund and a specialist equity fund, with a concentrated portfolio of international equities. ESB decided that the managed fund run by its incumbent manager, should act as the fund’s default investment option for its existing members. The consenus fund run by a new manager should act as the default option for any new members.
Following the investment review process, an extensive communications exercise ensued. All existing members and non-members from the various subsidiaries were provided with information packs outlining the new investment options. Employees were then invited to attend open forum presentations, which included an overall introduction to the investment options, followed by individual presentations by the three investment managers. A question and answer session followed each presentation and a new pensions folder was issued to each member including a revised booklet on the scheme.
Members were then free to exercise their new investment choices, with the added flexibility of being able to differentiate between accumulated funds and new contributions as well as being able to spread their investments (existing or new) among the three managers and/or among the nine funds on offer.
While these choices were being made, ESB made sure that advice was on hand for members who had selected choices which might be considered unusual for their profile.
As a result, the ESB scheme has been redesigned to allow its members to enjoy a comprehensive range of investment choices, which meet varying risk/reward appetites and time-scales. Members now have an increased choise of fund manager with the facility to spread funds among three managers or to select the consensus fund to reduce ‘manager selection risk’. Both choices are flexibly structured to allow members to spread their investments among a number of funds and/or a number of managers. Members now have an annual opportunity to change their investment approach without charge.
ESB now benefits from an improved charging structure, using the combined purchasing power of a larger group of employees. There is also a new legal structure which can accommodate a range of subsidiary companies, with the flexibility to provide different levels of benefits in each.
The trustee structure now reflects the spread of members across the ESB Group. ESB has also improved its member booklet and communications strategy.

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