IAPF Spring 2018 Irish Pensions Magazine

IRISH PENSIONS MAGAZINE | SPRING 2018 | 39 FEATURE for the scheme through asset backed funding. The asset needn’t necessarily be traditional ‘bricks and mortar’ - some instances of asset backed funding in the UK have seen ripening cheese and maturing whisky used to provide security for schemes! We don’t yet know exactly where the DB reforms will take us, although it seems likely there will be change in the five years laid out by the roadmap. Whether that change brings employer covenant or employer debt remains to be seen, but the experience of the UK system in understanding a sponsor’s strength and what it can afford to pay to reduce pension scheme deficits is going to be of increasing relevance as the roadmap evolves. pension scheme retires, which sees a paternalistic approach replaced with more austere methodology. Furthermore, changes to the group structure could affect the level of funds available to fund a scheme deficit – worth noting as we have seen a gradual upturn in mergers and acquisitions. Corporate activity provides challenges for the trustees of a scheme in understanding what cash is available, particularly as the information they receive is usually after the transaction has taken place. Impartial analysis of the position before and after the deal is imperative, as is monitoring the situation of the corporate to anticipate and adapt to changes. Funding can take many forms. We have all heard that ‘cash is king’ and, in the main, money up-front would be preferable to all schemes. There are occasions though where flexibility may be required. The employer may need to retain funds for investment in capital expenditure, acquisitions, or there may simply be limited cash available at that moment in time. In this scenario, it may be useful to explore if any of the employer’s assets may be viable to use as security (contingent asset) where cashflow does not support increased contributions or to generate income ARTICLE AUTHOR Simon Kew Director, Financial Advisory - Pensions Deloitte