Governance is key to bolster success for DB schemes run-on strategy

The importance of governance must be considered when DB schemes are looking to run on, with a view to generating and sharing material surplus, warns Hymans Robertson, as it releases its latest paper. Those considering run-on for their DB scheme, must look at how adopting this strategy would impact key stakeholders, and the consequences this would have on existing governance structures.

In the paper, the leading pensions and financial services consultancy, considers the changes a run-on strategy would bring from three key governance perspectives – day to day challenges, shareholder interactions and alignment with Trustee boards. It looks at the importance of setting objectives in order that all stakeholders have a clear understanding of what a run-on strategy could bring.

Commenting on the importance of governance considerations as part of a run-on strategy, Sachin Patel, Senior Actuarial Consultant, Hymans Robertson says:

“When a company is considering run on its vital that the appropriate governance is considered as a key part of their run-on strategy, particularly in relation to its stakeholders. Run on can be transformative for DB schemes but to ensure the smoothest transition, it is imperative that consideration is given to the potential changing of dynamics between a business, and its pension scheme.

“In a day-to-day context, run on could amount to a huge change with the potential for the DB scheme to be thought of as a division, or in some cases a subsidiary, of the broader business. This will bring about complex changes to reporting lines and interactions that will need to be reviewed annually as a minimum.

“Similarly, any market guidance and the reaction of any shareholders must be considered as, and when, choosing to run on a DB scheme. It’s vital that shareholders are left feeling assured of the strategy adopted and how this will change the business profile. Our paper provides more areas that should be considered, focusing on the impact on timing and distribution, as well as the importance of accounting implications.

“Finally, collaboration between corporates and trustees is vital if a run-on strategy is to be successfully imbedded. There must be complete agreement, and alignment, between parties to ensure a scheme’s run-on objectives are joined-up. Once a collaborative framework is in place, and key stakeholders have been considered, a successful run-on strategy is ever more likely.”