Trustee interview: Giving pensions a lift
Read about member nominated trustee Mike Fahy and the changes he’s seen in trusteeship
Mike Fahy is about to head off for a long weekend of fishing in Lincolnshire. Three years into his retirement from international brands distributor Barloworld, it is a far cry from “the old days” of steaming in a suit on the London Underground. “I must say I am not missing those days too much,” he confesses.
Besides fishing, Mike Fahy lists skiing and football (he is a Chelsea season ticket holder) among the hobbies he enjoys. But the energetic and relatively youthful Fahy – he is 57 – has also made time to serve as a member-nominated trustee (MNT) of Barloworld’s UK pension scheme.
“A lot of my time has been on the other side of the fence: I am a poacher turned gamekeeper”
Having been a trustee since 1998, his fellow trustees wanted to keep him on the board after his retirement in 2007 because of his knowledge and experience. He was voted on as a pensioner MNT: “As we all know, keeping continuity and a wealth of knowledge is invaluable to a trustee board”, he explains.
Fahy admits that he is not “your archetypal MNT”. “A lot of my time has been on the other side of the fence: I am a poacher turned gamekeeper”.
He was group company secretary at Barloworld and then secretary to the pension schemes from 1993 to 1999 – after that responsibility, becoming a trustee in 1998 was a “natural step”.
He has served as a trustee over an eventful period for his scheme. Besides turbulent financial markets and significant regulatory changes, he has lived through the merger of the two previously independently run defined benefit schemes in 2005. The merged entity now has around £400m in assets under management.
Control and cost considerations lay behind the merger, Fahy explains. Each scheme was “doing its own thing” and keeping them under one umbrella made a lot more sense. Moreover, the duplication in administration and professional advice meant that “there were synergies and quite considerable cost savings to be had”.
A potential stumbling block was one of the schemes was seriously underfunded, while the other was fully funded. The merger could only go ahead if a solution was found. The issue caused much “discussion and negotiation”, recalls Fahy. With liability driven investment (LDI) strategies not on the menu in the “old days”, the underfunded scheme was brought up to the funding level of the other scheme by means of the more traditional route of investment.
“You are constantly trying to keep your head above water and keep ahead of the rules and laws and regulations”
The fact that there’s “always something new going on” in the pensions world is one of the aspects of the trustee role that Fahy finds most interesting and challenging.
There is never a period, he says, when you can relax for a while as a trustee. “You are constantly trying to keep your head above water and keep ahead of the rules and laws and regulations – it’s a constant challenge – but it’s an enjoyable challenge,” he says.
However, he admits that if he could change anything about the current pensions landscape, it would be to ease the regulatory burden. “We need time to consolidate, to consider what we already have – so some unburdening of the red tape would certainly be a useful step”.
Facing the future
Given the opportunity, Fahy would also review the IAS19 accounting standard, which he highlights as one of the rule changes that has caused pension schemes the most difficulties. “While it was probably well intended, it’s had a lot of adverse consequences,” he says.
With valuations and impact on the balance sheet and profit and loss account with the sponsor being measured on an annual basis, the industry is being driven towards taking a short-term view of pension schemes – yet they will be around for years to come.
However, he admits that the changes did force them to focus on liabilities, not just investment performance: “In the industry, in many schemes, we had probably lost sight of what liabilities were doing – if IAS19 did anything, it at least drew attention to that”. However, though it may be a “useful measure” that pension schemes are required to show their funding position on a particular day, in the prevailing investment and economic conditions a scheme could report a deficit one day – and it could be wiped out the next.
Musing on developments in the pensions world over the last decade, Fahy remarks: “Anything that could go wrong has gone wrong – it was almost one step forward and three back all the time”.
“Steering the fund through the choppy waters is a group achievement”
Advisers, particularly actuaries, he recalls, would want to construct asset / liability modeling: “It’s quite interesting that none of those models ever predicted – to me anyway – the severity of the two downturns we have seen in the last decade”.
Nevertheless, Fahy says one of the best things about his time as a trustee has been keeping the fund in “pretty good, reasonable financial health” through those turbulent times.
He insists this has been the achievement of the trustee board: “It’s a group achievement – steering the fund through the choppy waters – that’s probably the most satisfying thing”. The most disappointing thing, he admits, is that after the sponsor “put in a sizable chunk of change” in 2007 to level the schemes, the trustees again find themselves with another deficit: “It’s always difficult to explain these things to the sponsor”.
The scheme’s tri-annual valuation kicked off in earnest in April this year. Though it is too early to know the outcome, the trustees receive a funding update at each trustee meeting. “We are going to have to negotiate long and hard with the sponsor in terms of a deficit recovery plan”, says Fahy.
As a seasoned veteran, Fahy advises a newcomer to the trustee role “not to be overawed, particularly by the complexity of it”, but to make use of the resources on the Pensions Regulator’s website – in particular the Trustee Toolkit, which he calls “invaluable, very helpful and well laid out”.
A new trustee, he suggests, might even consider joining the fledgling Association of Member Nominated Trustees (see page 12). Fahy has recently attended its inaugural meeting, and been appointed to the committee. He explains that the Association aims to fill a gap in providing help and networking for MNTs: “I think it will be useful and a good voice for MNTs going forward, and hopefully it will be another voice for the industry as well.”