UK - Trustees must liaise with sponsoring employers on financial planning for their pension schemes or risk having to disinvest assets, Jardine Lloyd Thompson warns.
JLT technical director June McIntosh said she knows of several schemes which have been forced to pull assets out of investments because of a lack of financial planning by the trustees.
A common cause of cash-flow problems is mass redundancies and subsequent early retirement payoffs.
McIntosh warned: “If trustees haven’t thought about it, they may be forced to disinvest large sums of money – and perhaps when equities are not performing very well.”
She stressed that this practice could be “very expensive” and trustees must make provisions to avoid it.
McIntosh explained that when trustees switched investment managers, the cashflow requirements of the pension fund were often overlooked.
But she said dialogue with the company – which would know about these redundancies in advance – could help the trustees in their financial planning.
“If the company knows there are plans to trim down the staff, or that there is going to be redundancies, perhaps even in six months’ time, that could mean significant calls for cash from the scheme.
“You have to plan that ahead.”
McIntosh said trustees and sponsoring employers must have ongoing dialogues about what might be required on the pension scheme in terms of ongoing benefits.
“It is a simple, straightforward issue, and all the trustees have to do is say they want to have a six-monthly or yearly forecast on what the demand is going to be on their funds.”
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