Defined benefit (DB) pension scheme sponsors should work with trustees to review and set long-term pension funding and investment strategies in an effort to ensure that the pensions journey is aligned with wider business needs, LCP has said.

The consultancy warned that there is a risk that sponsors who aren’t working proactively with their trustees could be tied into a long-term pension strategy that may demand higher cash funding, and might not fit with wider business objectives over time.

In particular, LCP raised concerns that a lack of action now could cause future issues around the inefficient use of resources, unhelpful accounting, impacts of trustees led initiatives, and road blocks for future corporate activity, such as dividends and future refinancing.

In light of this, the firm identified a number of components that are key to a successful strategy between the sponsor and trustee, including clarity on the scheme’s ultimate destination, timescales, regulatory requirements, and managing liability side risks.

LCP corporate team principal, Laura Amin, commented: “As a result of the Pension Schemes Act and the The Pensions Regulator's new powers, trustees and sponsors need to work closely together to ensure there is a sustainable journey plan for their scheme.

“Scheme sponsors really need to seize the day and proactively engage with their trustees to ensure that the scheme’s plan is aligned with the wider business needs.

“For instance, sponsors taking a back seat now may find the trustees setting a strategy resulting in higher cash funding requirements over time and potential road blocks for future corporate activity.

“It isn’t just to minimise risk, there are opportunities to be had in trustees and sponsors working hand in hand.

"Sponsors being proactive and engaging with the trustees early can help set the pensions strategy and ensure alignment with the wider corporate strategy. There is the potential in most cases for real win-win outcomes.”

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