Six ways every CFO can support their pension scheme

That means the relationship between pension scheme trustees and the sponsoring employer’s Chief Financial Officer can affect everything, from how the scheme is funded, to members’ engagement and retirement outcomes.

The extent of a CFO’s involvement in defined benefit (DB) and defined contribution (DC) pension schemes differs – but in both cases, a consistent, transparent relationship with the trustee board is essential so that the sponsor and trustees can work in each other’s best interests.

Here are six ways that CFOs can support trustees to ensure their pension schemes are well run in the best interests of members and the employer alike.

1. Understand each other’s long-term goals

The more trustees and the scheme sponsor know about each other’s aims and responsibilities, the better they will be able to communicate. The CFO can help by explaining the business’s long-term goals to the trustee board, and learning more about the trustee board’s operating methods, investment strategies, and the regulatory environment that they have to work within. Professional trustees can also play a crucial role, by reassuring the CFO that scheme governance is best in class, and making sure that dialogue between the scheme and its sponsor remains clear and consistent.

2. Work at the pace of the pension scheme

Pensions move at a different pace to businesses. The time horizons over which DB pension schemes operate and the speed at which change happens is significantly different from a traditional business environment. Scheme de-risking and recovery plans may span decades, whereas businesses’ activity is often based around quarterly or annual results. Even an event as extreme as the LDI crisis in the autumn of 2023 proved for many schemes to be only a minor deflection in their planned trajectory.

3. Engage early

If the sponsor’s business is going through changes that could affect the pension scheme, such as a merger or acquisition, CFOs can help trustees by engaging early and sharing as much information as possible. The scheme can then plan for change and factor any impact into their plans. In some instances, a change to the sponsor’s situation could be a Notifiable Event, which means that the trustees, sponsor, or both may need to inform The Pensions Regulator (TPR).

4. Be aware of The Pensions Regulator’s role

Trustee boards are answerable to TPR which monitors all aspects of trust-based scheme governance. While there are overlaps with other forms of corporate governance, TPR’s requirements for trustees are very specific. By getting to grips with TPR’s remit – perhaps even completing elements of its Trustee Toolkit – CFOs will better understand many of the drivers behind trustee decision-making. TPR’s remit in relation to sponsors has also recently been extended and it is not afraid to use its new powers. These include criminal offences, financial penalties and inspections, so sponsors should make sure they engage promptly and effectively with TPR when required.

5. Support good outcomes for DC members

DC schemes typically require less involvement from the CFO than their DB counterparts. The savings pots within DC schemes are the responsibility of individual members, so employers can have little or no involvement in the pension scheme beyond fulfilling auto-enrolment regulations. However, a sponsor that is proactive and engaged with DC pensions can make a significant difference to member outcomes, by supporting quality communications, creating a culture where pensions are seen as a valuable benefit, and helping employees to make good decisions at retirement. From a business perspective, that also means employees will have a clearer picture of when they can retire, which helps with business planning.

6. Get involved

CFOs will often also be trustees of their workplace scheme, either as a member-nominated trustee (MNT) or employer-nominated trustee (ENT). That means they are in an excellent position to see the scheme both from a sponsor and trustee perspective, which can really benefit overall scheme governance. And while there might be occasional clashes of interest between the CFO’s dual roles as sponsor representative and trustee, a well-structured board of MNTs, ENTs, and professional trustees can ensure these are identified early and effectively managed.

It’s tempting to see pensions – and especially closed DB schemes – simply as a cost burden for a business. However, a good relationship between trustees and the sponsor’s CFO can make sure schemes are well-run, with the best interests of the sponsor, members, and The Pensions Regulator fully in mind.

This piece originally appeared here on Pension Funds Online: Six things every Chief Financial Officer can do to support their pension scheme – Pension Funds Online