Pension investment is a big headache

May 20 2005 by Brian Amble Print This Article

More than six out of 10 UK organisations say their biggest pay and benefits concern is ensuring that their pension fund investment arrangements are cost-effective and operationally efficient.

A survey of more than 600 organisations by Mercer Human Resource Consulting has found that the top four issues were all pensions-related, with 63 per cent citing their pension fund investment arrangements as their biggest headache. Preparing for new pension tax limits next year, pension fund asset allocation strategy and pension risk and governance were all voted very important by more than half of respondents.

"Pension scheme liabilities have come under intense scrutiny from finance directors over the last couple of years. Because of this we have seen a shift in focus - pensions have moved from the HR agenda to become a finance issue, and this is reflected in the survey responses," said Peter Bowers, Worldwide Partner at Mercer.

Half of organisations also said that the need to develop efficient measures to link employee pay to performance was another crucial issue. The desire to communicate the value of total rewards to employees was also ranked as very important by half of those surveyed.

"It's not surprising that employee reward issues are a hot topic at the moment. Pay and benefit programmes represent one of the greatest expenses for most organisations, so it makes sense to ensure they are well structured and communicated," added Mercer's Stephen Cahill.

However for the company bosses questioned, the most important concerns related to executive pay.

Achieving responsible executive pay and board governance was rated very important by more than six out of 10 of the for chairman, CEOs and managing directors who took part in the survey while aligning executive pay to long-term business performance was considered crucial by more than half (55 per cent).

Improving sales force effectiveness was also a prominent issue for this group, with 55 per cent considering it to be very important.

For finance directors, the most pressing issue was maximising the cost and efficiency of pension fund investment and setting and adapting pension fund asset allocation strategy, both ranked very important by 55 per cent of respondents.

Managing pension debt and supervising closed defined benefit schemes were also deemed important by 45% and 42% of finance directors respectively.

Four out of 10 finance directors felt that communicating total rewards to employees was an issue while marginally fewer (38 per cent) thought linking pay to performance was important.

"Pension scheme deficits, which becoming more transparent under new international accounting standards, are increasingly being viewed as company debt," Peter Bowers said.

"As investors take a more active interest in companies' pension liabilities, organisations are being made to consider how they might address their scheme deficits."