Alan Botterill’s claim that the Myners report is just one part of the jigsaw, is a sentiment shared by every other consultant interviewed by IPE. They agree that 2001 was frantically busy and a year in which the industry faced an unprecedented number of changes. It’s not just the Myners report that has led to consultants being inundated with work. Roger Urwin, global head of investment consulting at Watson Wyatt in London, cites two other issues including the onset of the FRS17 accounting standards and the Unilever and Merrill Lynch court case. Each of these has raised numerous questions for sponsors and trustees to answer.
As if this was not enough to deal with, the well-documented plight of Equitable Life, seen as the doyenne of pensions provision, has also jolted scheme members into considering the size and security of their pension. Indirectly this has produced a far greater financial awareness among employees and employers have found themselves catering for far savvier members who, for once, are interested in their pensions. Combine this with the shift to defined contribution and employers are having to put together comprehensive systems to inform and educate their employees.
As for the advent of FRS 17, assets and liabilities are to be measured at market value rather than on a smoothed basis. “The financial management of pension funds and the risk reward ratio is becoming very evident on the balance sheet through FRS 17 and this is going to get people asking whether they are financing their liabilities correctly,” says Botterill.
One event in the limelight at the end of 2001 was the case in which Unilever Superannuation Fund took Merrill Lynch’s Mercury Asset Management to court on the grounds that it had taken excessive risk when managing £1bn in funds. Despite being settled out of court, thereby alleviating fund managers’ fears of setting a precedent, the case has highlighted the issue of who is ultimately responsible for risk management and liable for underperformance. Recent research by the investment managers SEI suggests almost half the UK companies it surveyed the week after the settlement are thinking of reviewing their investment management arrangement.
Jon Bailie at Frank Russell says there is a desire among pension funds in the UK for more accountability from their consultants. The same research suggested three quarters of those surveyed felt the court case has placed more emphasis on the responsibility of trustees. Russell’s manager of manager approach and Watson Wyatt’s implemented consulting approach are clearly a more hands on approach that allows the trustee to delegate some responsibility.
Finally at the end of 2001, the £2.3bn pension fund of the Boots group sold its entire equity and short term bond holding and opted instead for long term sterling denominated bonds. Although consultants agree this is unlikely to lead funds to emulate Boots entirely- after all it is a bold move and highly unusual in the UK- Fitzpatrick says that it has led many trustees to question whether they have got the balance of their portfolio right.
The UK has always been the European market most willing to employ consultants but 2001 was exceptional and the events will continue to affect the industry for some time to come. As Botterill says: “This has been a year of significant change for the UK pensions market and it will be one that is remembered as a year that started a lot of further changes.”

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