Scheme and Sponsor Background
There were three Schemes all with the same sponsor based in Europe including a professional trustee on the board.
The company, a UK-based infrastructure provider, was winning fewer contracts due to its inability to manage pensions risk on its balance sheet effectively.
Mercer was the incumbent fiduciary manager (FM) on two of the company's Schemes (a total of £300m in assets) and was up for review. The trustees had three main issues with Mercer’s management of the scheme:
- Automation - The trustees believed the de-risking triggers were too automated and wanted human oversight and intervention when necessary.
- Customisation - They desired greater customisation of their pension scheme strategy to optimise return on assets and manage their risk.
- Communication - They wanted help in communicating the benefits of an FM to their parent company.
To solve the problem of too much automation in the de-risking process, we implemented our “Intelligent de-risking” for the schemes.
While journey plan monitoring is automated, implementation is not. We do not believe in predefining or automating the execution of de-risking as this is sub-optimal. While SEI takes action and executes on a next-day basis, we retain discretion for how we enact de-risking. SEI takes a delegated role in responding to triggers followed by reporting to the Trustees on the outcome.
The Schemes benefitted from SEI’s proprietary liability calculation system which accurately tracks the behaviour of each Scheme’s liabilities on a daily basis rather than a proxy liability benchmark. This enables us to support our advice process and journey plan monitoring.
For example when SEI de-risk we have discretion to use gilts, swap and credit instruments, of various maturities as well, to take advantage of market opportunities at that particular moment in time.
We achieved greater customisation of their pension scheme strategy to optimise return on assets and manage risk. To suit the unique liability profile of each individual Scheme, each Scheme was given a specific investment strategy and journey plan.
Different levels of growth were targeted for each scheme depending on their specific liability discount rate as well as their requirement to close a deficit.
We began by taking a customised approach for each Scheme’s specific circumstances – considering risk appetite, funding level, and ultimate goal. We then built a journey plan tailored to these objectives for each Scheme. When the funding level of each Scheme improved along its specific journey plan, subsequent strategies targeted progressively lower risks versus the liabilities.
To help communicate the benefit of our advice and implementation solution to the Sponsor, we drew on our FM experience gained in over 25-years of helping many trustees and sponsors meet their long term goals. Through training and collaboration, we helped the Sponsor as well as the trustees understand the specific requirements of UK Defined Benefit plans. In addition, we provided separate customised reporting for key metrics that they had a particular focus on.
- One of the Schemes had a series of buy-ins and is now targeting buy out
- Another has de-risked along its journey plan. As at December 2019, that Scheme has experienced a funding level improvement from growth assets of 9.2% since inception (Q2 2016), net of contributions1. It is now on the path to self-sufficiency.
Overall, due to our intelligent de-risking, customisation and communication, we are able to bring all the Schemes closer to their goals.
1Time period: Q2 2016 to Q4 2019. Net of fees.
Past performance is not a reliable indicator of future results.
Source: SEI. Please refer to the proposal for disclosure information.
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The value of an investment and any income from it can go down as well as up. Investors may get back less than the original amount invested. Past performance is not an indicator of future performance.
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