PwC was brought in by Western Power Distribution (WPD) to streamline its pension scheme in response to industry regulator Ofgem calling for companies to act upon customers’ views regarding the business costs which are carried through to their bills.
The £0.75 billion saving- 40% of the overall deficit- comes at a time when pension schemes are being dented by continuing economic upheaval.
As part of the engagement PwC polled more than 2000 domestic and business customers whose bills include a charge for covering the use of the cables delivering their electricity.
PwC’s findings revealed a number of new conclusions on consumer interests:
· Cost cutting was valued much more highly than expected
· Customers are happy to take some fluctuations in their bills if this results in reduced overall costs
· As their understanding increased, customer's acceptance for rising pension costs increased.
Chris Venables, Engagement Leader and Regulated Markets Partner at PwC, said: “Ofgem has laid down the gauntlet to firms, challenging them to act upon consumers’ views on pensions costs – or risk having to strip out the costs from customer bills altogether. For the first time a regulated business has taken customer views into account on managing its pension liabilities, leading to a £750m reduction in its pension scheme shortfall.
“WPD has paved the way for others to follow. This groundbreaking approach should encourage other regulated businesses to review how they manage pension costs.”
When PwC began its work with WPD in November 2015, one of the key objectives was to meet Ofgem’s requirements for consumers not being “expected to pay any excess costs that are avoidable by efficient management action.”
Using a combination of quantitative, qualitative and academic research based techniques, PwC drew up a framework to seek consumers’ views on how WPD should fund its pension schemes.
The study also reflected the views of future generations of consumers given the long term nature of pensions.
The conclusions echo those of similar studies run by public policy makers when assessing other initiatives such as building essential infrastructure or addressing climate change.
Chris Venables, Engagement Leader and Regulated Markets Partner at PwC, added: “The research findings show that cost-cutting for current and future generations is valued much more highly than previously anticipated.
"From a consumer interest perspective, the most efficient pensions’ strategy is one which has around 50% invested in equities – not too little and not too much.
“Consumers prefer this 'Goldilocks' type of pension scheme because the costs could benefit from future investment returns but would keep any potential peaks and troughs in their bill prices to within an acceptable range.
“If the industry is going to successfully navigate the increasing pension challenges while continuing to meet consumer targets for their business plans, then it will need to build on this research and demonstrate that consumers’ interests are central in the decision-making process on pension strategy.”
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