Working To The Same Goal
The key is to make sure that everyone is working to the same goal; making sure that the scheme has enough money to pay benefits to pensioners as they fall due. The trustees and the sponsoring company’s representative, together with the scheme’s advisers, must agree the investment assumption which their actuary will use in completing the scheme valuation and schedule of contributions are both acceptable and achievable.
These two documents form the basis for how the scheme should then be operated. There is no point in spending time finalising these and then sitting down with the investment manager and agreeing something different. For example:
· Why agree a benchmark (perhaps the upper quartile performance by reference to similar schemes) that in a major equity bear market will produce a result that is miles away from the investment return assumption?
· Why embark on a policy of investing in assets that will “best match” some of the liabilities (an example might be having bonds to match the pensioner liabilities) even though you know that the return is likely to be negative because interest rates are rising?
