As the people tasked with footing the bills, chief financial officers (CFOs) tend to regard pension schemes as both a significant employee benefit and a notable business cost. On the whole, their view in recent years has probably leaned more towards the latter.

This is understandable. A difficult economic backdrop, onerous regulation, mounting legal and reporting obligations and ever-spiralling complexity have made pension provision expensive, challenging and even risky.

Yet such a daunting outlook does not necessarily apply today. A remarkable shift in financial conditions has in many ways transformed the picture, and CFOs should increasingly like what they see.

Take real yields on long-dated gilts, which have gone up by more than 3.5 per cent during the past 18 months. Mainly affecting defined benefit (DB) schemes, this makes the price charged by an insurance company to “buy” such liabilities an awful lot lower than before.

Pension fund assets have generally fallen during the same period, meaning funding levels (assets/liabilities) have risen. With an improvement of 15 per cent not unusual, a scheme that was 80 per cent funded might now be at 95 per cent – and therefore in sight of being fully funded.

Meanwhile, the government is encouraging aggregation of defined contribution (DC) schemes into much bigger pools. In tandem, consolidation of the master trust market is widely expected.

In light of all these developments, arguably for the first time in decades, CFOs might reasonably perceive pension schemes as presenting more opportunities than threats. Let us examine some of those opportunities in more detail.

1. DB schemes

On average, while there is still much to think about, DB schemes have never had it so good. They can choose to settle (buyout), run on (low dependency) or – in some cases – create surplus.

Surplus can be used to fund other schemes. Alternatively, the proceeds might be shared with the company – after all, it is the business itself that has borne the risk for many years.

Crucially, a growing number of DB schemes are moving to a simpler trusteeship model that allows a corporate sole trustee (CST) to sit in place of a traditional trustee board. Usually a professional firm, a CST oversees governance and operations and acts as a point of contact for all aspects of a scheme.

Although its appeal is earning acknowledgement across the spectrum, this approach is becoming especially popular among smaller schemes. By recognising a scheme’s long-term horizon should not obscure the importance of effective decision-making over the shorter term, it enables pension experts to respond dynamically to day-to-day events.

2. DC schemes

Aggregation in DC schemes is accelerating. Small schemes in particular are facing a tidal wave of regulation that is clearly designed to steer them towards master trusts and the like.

This should be in employees’ interests, as it expands choice and the range of opportunities available at key points during a working life. It should also simplify the deployment of corporate resource in pension provision, lowering overheads by dispensing with much of the regulatory noise.

There is a lot of talk at present about illiquid investments, but the real action is “at retirement”. This is when providers can find themselves scrambling to deliver credible, simple solutions for what can be very complex personal decisions.

It may appear at first glance that this is not really a CFO concern. Ultimately, though, a CFO wants to ensure that retirees are properly looked after and guided and that a company’s reputation is safely managed.

3. People

The members of many in-house pension teams are unsettled. Whether their focus is administrative, secretarial or investment-related, they perceive their roles to be under threat – and they are often right.

Staff churn in these teams can translate into financial and reputational exposure. Risk might be left on the table. There may be opportunity cost in missing attractive buyout pricing or terms for buying and selling assets.

This is why outsourcing is gathering pace. In some instances an in-house team might be transferred as part of such an arrangement, which not only maintains strong links with a scheme but presents new career opportunities – a win-win.

Through Pegasus, our own pensions executive team, Law Debenture offers services on a fully out-sourced, modular of project basis. A fundamental goal of any such outsourcing should be to work with sponsors to generate added value.

The sphere of pensions undoubtedly remains complicated and burdensome. Moreover, it is likely to become even more so. Nonetheless, CFOs now have two factors in their favour.

The first is that the financial landscape can today be seen as more conducive to employee benefit and less conducive to an escalation in business cost. The second is that professional trusteeship and support can help navigate this ever-evolving arena – with its opportunities and threats alike – to best effect.

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