UK - Finance directors (FDs) at UK companies are getting far more involved in decisions over the pensions schemes they sponsor, with some even influencing the investment choices of trustees, a new study reveals.
Corporate finance chiefs were "a new centre of influence in pensions" in the UK, marketing intelligence firm Spence Johnson concluded.
This finding has implications for pensions-related suppliers such as asset managers, according to the report ' A New Centre of Influence in Corporate Pensions', sponsored by the National Association of Pension Funds.
While suppliers have focused on selling to trustees, pensions professionals and heads of HR, they now needed to target FDs as well. "This would be a big change in the way that pensions relationships were built and fostered," the firm said.
Factors prompting this change in the role of FDs were new regulations and stockmarket volatility, according to the report, which took in responses from 43 firms, mostly large companies.
Although FDs are very much a part of investment derisking decisions, they often avoid the detail, it said. At the moment, they are not involved in defined contribution (DC) as much as in defined benefit (DB).
"FDs are effectively taking the lead in investment conversations with trustees to ensure they get the investment strategy they want - the one which reduces their annual contribution to paying off any deficit to as low a level as is reasonable," the report said.
One finance director was quoted explaining how he got involved in investment strategy. When trustees asked for a higher contribution than the company was prepared to pay, he found out this was due to a cautious investment strategy, which he then encouraged them to change.
The study said that while FDs were very involved in pensions strategy - meaning decisions on scheme type and structure - they were also involved in investment strategy, a decision in theory down to trustees in a trust-based envioronment.
"FDs are deeply interested in what contributions they have to make to the deficit each year, and this amount is in turn influenced by investment performance."
"We see evidence that many FDs are heavily influencing trustee investment committees," the study added.
While there was little evidence they took the lead in implementation and selection, in house finance or HR teams could be closely involved. "So the corporate footprint is not entirely absent," it said.
But the report's authors said the findings did not mean there were any conflicts of interest, or that the finance chiefs were really trying to disenfranchise trustees.
Magnus Spence, director of Spence Johnson told IPE: "You have to hunt very hard for actual conflict. What's happening here is very calm people making rational decisions; it's very consensual, very considered."
Spence said the trend tracked in this project mirrored a US pattern. "It is an early indication that the same pattern observed in the US is also now happening in the UK," he said.
Spence Johnson predicted FDs and their teams would eventually take the lead in all pensions decision levels, including implementation and selection.
Separately, another report from Spence Johnson forecasts more opportunities for assets managers without their own DC platforms (DCIO firms).
"We estimate that 40% of assets are invested through third party funds today, and this will grow to 55% in the next ten years," the research firm said.
Active funds probably had 62% of the overall DC market, it said, with this percentage falling to 36% among very large schemes.
Revenues for active equity DCIO asset managers would grow nearly sixfold to over £800m (€937m) in the next ten years from £141m today, it forecast.