IN THIS ISSUE p2 Opportunities for corporate pension strategies from the use of real-time information p3 Revised IAS19 and the abolition of FRS17 - actions to take now p4 Contact details and further information In this LCP Corporate Update we consider the following issues: The ability to use technology and real-time models is rapidly increasing within the pensions world. We consider how this evolving technology can help companies to make prompt and effective decisions and to monitor the risk within their pension schemes. A revised version of IAS19 applies for the first time for companies’ 2013 accounts and FRS17 is to be abolished in 2015. We consider what actions companies need to take now to comply with the changes in the accounting standards. LCP CORPORATE PENSIONS UPDATE QUARTER 4 2013 The evolving use of technology to enable prompt decision making and decisions needed following changes to accounting standards. Companies need to ensure they have accurate up-to-date information to base decisions on and be able to identify possible opportunities before they are missed. Key UK pension assumptions and statistics* 30 Sep 2013 31 Dec 2012 30 Sep 2012 IAS19 discount rate 4.2-4.7% 4.0-4.8% 4.2-4.8% Assumed RPI inflation 3.2-3.6% 2.8-3.3% 2.6-3.0% Assumed CPI inflation 1.9-2.7% 2.0-2.8% 1.6-2.5% Long term gilt yield 3.4% 3.0% 2.9% FTSE 100 index 6,462.2 5,897.8 5,742.1 * the figures shown are indicative ranges, different figures may be appropriate depending upon the individual circumstances
Transcript
IN THIS ISSUE
p2 Opportunities for corporate
pension strategies from the use
of real-time information
p3 Revised IAS19 and the abolition
of FRS17 - actions to take now
p4 Contact details and further
information
In this LCP Corporate Update we consider the following issues:
� The ability to use technology and real-time models is rapidly
increasing within the pensions world. We consider how this evolving technology can help companies to make prompt and effective decisions and to monitor the risk within their pension schemes.
� A revised version of IAS19 applies for the first time for
companies’ 2013 accounts and FRS17 is to be abolished
in 2015. We consider what actions companies need to take now to comply with the changes in the accounting standards.
LCP CORPORATE PENSIONS UPDATE QUARTER 4 2013
The evolving use of technology to enable prompt decision making and decisions needed following changes to accounting standards.
Companies need to ensure they have accurate up-to-date information to base decisions on and be able to identify possible opportunities before they are missed.
Key UK pension assumptions and statistics*
30 Sep
2013
31 Dec
2012
30 Sep
2012
IAS19 discount rate 4.2-4.7% 4.0-4.8% 4.2-4.8%
Assumed RPI
inflation
3.2-3.6% 2.8-3.3% 2.6-3.0%
Assumed CPI
inflation
1.9-2.7% 2.0-2.8% 1.6-2.5%
Long term gilt yield 3.4% 3.0% 2.9%
FTSE 100 index 6,462.2 5,897.8 5,742.1
* the figures shown are indicative ranges, different figures may
be appropriate depending upon the individual circumstances
LCP Corporate Pensions Update Q4 2013 2
A revolution in how corporate sponsors manage
their pension risks is taking place. Technology now
enables sponsors to access real-time and accurate
information on their pension deficits, costs and
risks, in a similar way to which they can track their
share price online. This is ensuring that frustrating
discussions based on out-of-date figures are
becoming a thing of the past.
What real-time information can sponsors monitor? � Surplus or deficit calculated according to cash
funding, accounting, buyout or other measures.
� Progress against the agreed cash deficit recovery
plan.
� Implications of different possible recovery plan
“shapes”, assumptions and time periods.
� Progress against any pre-agreed “triggers” to switch
between asset categories.
� Key pension risk metrics.
� Buy-in or buy-out price targets.
Why does this help pension sponsors?Whilst pensions are ultimately long-term
commitments, every measure of surplus or deficit
is now calculated on a “mark to market” basis
and changes from day to day, sometimes by large
amounts.
� By avoiding delays and using real-time information,
short-term monitoring can facilitate long-term
strategic planning. Once the strategy has been
developed, this maximises the chances of effectively
implementing it (for example, by making derisking
decisions at the right time).
� “What-if” scenarios can be run to immediately
answer questions from senior management and
to help inform the sponsor’s approach to funding
negotiations and other discussions with pension
scheme trustees.
� Sponsors can make key decisions based on up-
to-date information. For example, in the run-up
to a formal valuation the sponsor might generate
a (broad) estimate of deficit or surplus. This can
enable the sponsor to have meaningful discussions
in advance on the relevant funding options, such
as “special purpose vehicles” to increase security
in scenarios with a deficit (see LCP Corporate
Update Q3 2013), or on vehicles to manage “trapped
surplus” risk (eg escrow accounts or separate trust
arrangements).
� “Best-estimate” projections can be performed
taking account of ever-changing market conditions -
eg projections of year-end accounting positions and
next year’s P&L.
LCP is at the forefront of developing intuitive tools
in this arena. We welcome the opportunity to
demonstrate these to scheme sponsors.
Opportunities for corporate pension strategies from the use of real-time information
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