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Only a quarter
of companies now consider pensions to be a key business risk, according
to Aon Consulting.
Research by the firm shows that companies are instead looking at
the changing market environment, business interruption, distribution
or supply chains, damage to reputation, regulatory change and recruitment
and retention as the areas that contain the most threat to their
futures.
Aon’s research also showed that only 14 per cent of participants
believe that the Pensions Regulator’s (TPR) additional powers
to intervene in acquisitions, disposals and restructurings are currently
affecting corporate activity.
“It is encouraging to see employers consider pension scheme
risk alongside other commercial risks,” said Paul Dooley,
senior consultant and actuary at Aon. “Corporate decision
making can be improved by understanding how pensions risks are related
to other business risks, both in terms of the potential size of
risks and the links between them.”
Dooley acknowledged that risk to pension funds is not limited to
financial issues, but can also be affected by poor communication
or inadequate governance through loss of reputation or failure to
attract or retain staff.
“The objectives of employers, trustees and members are largely
aligned. A healthy sponsoring employer is critical to the financial
well-being of a pension scheme. Equally, trustees and employers
have a mutual interest in the effective financial management of
pension schemes so that members receive their promised benefits
without unbearable strain being placed on the sponsor,” Dooley
continued.
Dooley concluded that the current economic climate makes the consideration
and understanding of business risks all the more important and integral
in the decision making process in terms of financial management.
“Where companies are experiencing trading difficulties it
is crucial that the Pensions Regulator supports those employers
that are working together with trustees to meet their common goals.
In certain cases, even though pension scheme funding levels are
likely to have deteriorated, it may be in the long-term interests
of the pension scheme members for employers to pay lower pension
contributions for a period – perhaps with some other form
of security being provided – until the commercial environment
improves.”
- Pensions
Age September 2008
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