Mercer has launched a new real-time daily funding monitoring service as part of its drive to offer more effective risk management services to Defined Benefit (DB) schemes. The Funded Status Monitor (FSM) provides trustees and company representatives with a daily update of the pension scheme's asset and liability values.
FSM allows companies to work in partnership with trustee boards with each able to monitor and project the financial position on assumptions appropriate for their needs - as well as understanding the viewpoint of each other, for example, the impact on the projected company balance sheet in 5 years' time using either current market conditions or a possible future scenario can be compared with the impact of cash contribution requirements under the Trustees' recovery plan.
"Trustees and company representatives are often hampered by a lack of real–time access to scheme financial management data," said Alan Baker, Partner at Mercer. "For many schemes, a quarterly update is not enough as funding levels can change markedly in a three-month period. FSM allows those involved in the management of a DB scheme to have oversight of their funding position to be able to plan and monitor accordingly. For those schemes looking to take proactive action on the daily funding level changes, Mercer also offers a Dynamic De-Risking Solution whereby Mercer will take investment decisions based on the up to date funding level.”
Periodic scheme asset and liability data is entered into FSM by Mercer and the system then provides a daily update based on relevant market indices. Clients can see the funding position and cost of accrual on different measures (accounting, funding, secondary funding and least risk) and they have the ability to vary the key financial assumptions. Clients can also understand the approximate impact of high level changes to the investment strategy giving insight into the impact of potential risk management strategies.
The FSM tool also contains a "Forecast" module specifically aimed at supporting trustees and company representatives in considering their recovery plans for pension scheme valuations. This module provides up to a 30-year projection of the funding position on each of the bases being monitored, again updated on a daily basis. Clients are able to model different future scenarios, with the ability to vary financial assumptions and cash flow data in each future year, and this module can also be used to see the high level impact of making a change to the scheme's structure such as closing it to future accrual.
"We have signed up more than 20 UK companies to FSM so far," said Alan Baker, "and anticipate further interest as the de-risking of DB schemes moves up the corporate agenda. This is a really practical and easy-to-use tool designed to improve awareness and understanding of pension scheme volatility."
According to Angus Bantock, Head of Planning & Control – Pension Investments at BP plc, who are now using FSM in the UK, "The Monitor provides BP with insight into how changing market conditions are affecting our pension funds; we find the ability to look at different future scenarios particularly helpful."
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