Study finds pension trustees unaware of risk of default by sponsoring company
Yesterday CF reported the news that Uniq, the UK food company, had been strong armed by its pension trustees into backing out of bidding talks over fears that a deal might have harmful consequences for the pension scheme. But a new study shows that more often UK pension schemes are less assertive, routinely failing to take account of the risk of default by their sponsoring company when determining funding and investment policy. The Standard & Poor's study covers the 346 largest private sector defined benefit schemes in the UK, and examines the funding and investment profile of schemes relative to Standard & Poor's credit assessment of their sponsors.
It shows that trustees appear not to have factored the sponsor's financial strength into decisions about funding and investment policy, thereby exposing scheme members to additional risks. This practice should change significantly as a result of the 2004 Pensions Act, which explicitly requires trustees to take account of the strength of the sponsor's covenant in setting funding principles.
"Trustees have a long way to go to understand the significance of the sponsor's credit strength upon their decision taking," said Jim MacLachlan, European head of pension services at Standard & Poor's.