REPUTATION MATTERS FOR PENSION TRUSTEESIssue 1 2011

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Content

Introduction 3

Managing Relationships with the Sponsor in a Bid Period 4

John Adshead, OBE

Why Trustees Use PR advisers 6

Charles Amos

Pension Scheme reputation management 8

Anthony Hilton

Why trustees should spend (at least a little) time thinking about PR 10

Mark Cobley

Communicating with pension fund members 12

Matt Gore

Delivering internal communications – a case study of USS 14

MHP is a top ten UK PR company and the leading PR adviser to UK Defined Benefit

pension schemes. By value MHP advises some 10% of total Defined Benefit schemes

in the UK, including four of the top twenty-five schemes – USS, Royal Mail, Barclays and ICI.

Formed last year from the merger of Hogarth, Penrose and Mandate, MHP topped

the 2011 Reputation Online/New Media Age’s agencies league table.

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Welcome

Nick DentonManaging Director Pension Advisory and Investor Services, MHP

Welcome to the inaugural issue of Reputation Matters for Pension

Trustees. This issue includes a range of contributions which we hope

you will find of interest and use when considering how to manage

external reputation and communications matters for your scheme.

John Adshead provides guidelines on how trustees should work with sponsoring employer

boards during a potential or actual bid. These are based on his own experience as Chair at J

Sainsbury’s pension scheme over many years including the period when Sainsbury’s faced two

putative bids in 2007.

Traditionally trustees have been understandably reluctant to use the press as a platform.

Charles Amos of ICI Pensions proposes that the media can, in fact, provide the best channel

to ensure the trustees’ position is well understood and appreciated externally, especially in the

specific context of a takeover bid.

Two journalists who know the pension field very well – both are pension trustees - have also

produced interesting contributions. Anthony Hilton has written one of his typically authoritative

pieces on why and how trustees need to manage the reputation of their scheme in practice;

while Mark Cobley of Financial News has produced a heartfelt plea for trustees to engage more

with journalists.

Matt Gore of Pension Corporation looks at the best way to communicate to scheme members

during a buy-out and how this needs to be developed beyond the basics.

And there is a case study of how USS has undertaken a detailed communications plan to its

285,000 members and some 400 universities and higher education institutions.

We very much hope you enjoy this publication and find it useful. We aim to produce further

issues every six months or so. Obviously we’d be delighted to hear your views and to know if

there are specific topics you would like covered in future issues.

nick.denton@mhpc.com

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Managing relationships with the sponsor in a bid period

A bid period will most likely be tense and

frantic and it may be difficult to establish, if

they don’t already exist, good and effective

relationships and channels of communication

with the sponsor when the trustees and the

company are under pressure and confidence

and trust are stretched by the circumstances

of the bid. These important relationships

should already be in place - like the scouts,

“Be Prepared”.

As a matter of good governance, the

trustees, particularly the trustee chair,

should have an agreed and formal right of

access to the senior official who can speak

for the company on pension matters (above

the Pensions Manager). This may be the HR

director or, more often these days, the CFO

or the Treasurer.

However, a bid makes things rather more

difficult and these company officials will

almost certainly be dealing with the bid.

They may favour the proposed ownership

change and, in any case, are likely to

have different interests from those of the

members of pension scheme - they may not

even be members. The key contact on the

pension implications of a bid and change of

ownership may be between the trustees and

the company board through their respective

chairs. It is desirable for the trustee chair to

have at least met and hopefully established

a relationship with the company chair before

a bid develops.

Trustees tend to operate on the basis that for

most of the time the interests of the company

and its current and former employees

who are pension scheme members are

reasonably well aligned. A bid situation is

one time when they may not be. It is the time

when independence of thinking, advice and

judgement is truly critical. Good practice

indicates that the trustees should have

independent support and advice. It is easy in

calmer times to go along with the inherited

situation of the company’s auditors, lawyers

and other advisers also serving the pension

scheme. However, this is unlikely to work

well when a takeover bid or merger plan has

been launched and separate advisers should

be in place before a bid occurs.

A key consideration for the trustees facing

a bid is the potential change in the strength

of the sponsor’s covenant. The bidders

may be contemplating restructuring and/

or re-financing the business. Attempting to

understand fully, once a bid is launched, the

strengths and weaknesses of the current

covenant and how it may change with new

owners is chancing fate for even the best

organized and resourced trustee board.

Sponsors may, even in calmer times, be

reluctant to see trustees seeking expensive

outside help in understanding and analyzing

the covenant.

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“Ask us what you want to know and we

will tell you” may be their suggestion. And

it is always a good idea to get as much

information as possible from the company

and from published sources.

However, it is also vital when a bid comes that

the trustees have, whether with outside help

or not, a well informed and well supported

view of the strength of the covenant. This will

be the fi rm foundation for the trustees’ hard

headed assessment of the bid’s implications

for the pension scheme.

Trustees have few formal powers but the

best defence of members’ interests they can

off er, whether or not specialist advisers are

engaged, is to be able to articulate clearly

for scheme members, for the company and

the bidders, for the Pensions Regulator and

if necessary for the public through the press,

a deep understanding of the risks to the

security of members’ benefi t that may follow

a change of ownership, and what is needed

to counter those risks.

During a bid, trustees should be bold, decisive

and robust in their dealings with the company

and the bidders. Communications with the

company, the bidders and others should

be timely, clear and if necessary forceful in

stating members’ concerns and interests. It

is easier to be purposeful, independent and

robust if the independence of the trustees

has been fi rmly established before the bid

arises.

John Adshead, OBEChairman of Sainsbury’s Pension Scheme 1994-2011Chairman of Vodafone and Segro Pension Schemes

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Why Trustees Use PR advisers

Trustees are constantly being urged to see

their mission as like running a business but,

in one key respect, it’s completely different.

Real businesses need contented customers

and advisers - ideally, more of them - so you

can see why companies use PR advisers.

But pension fund members are financial

liabilities; trustees don’t need more liabilities,

or happier liabilities, they just need to be

able to discharge them. Why on earth would

trustees need PR advisers?

Maybe to protect scheme assets? Surely,

though, protecting investments is what a

custodian bank does, or what investment

managers do when avoiding dodgy stocks,

or what trustees do when setting asset

allocation strategy or limits for individual

managers? Not much need for PR advisers

there, then?

The answer, as with so much else in pensions,

lies in the economics. Most UK pension

schemes are funded on an ongoing basis,

which is a polite way of saying with only

around a two-thirds chance of surviving

without needing even more cash than

planned from the employer. That right to

call on the employer in downside scenarios

is very valuable to pension funds (and

incredibly expensive to replace); it’s called

an unlimited downside put option.

For most UK trustees, that employer “put

option” is by far their most valuable single

economic asset, often underpinning one-

third or more of total liabilities. Yet it’s the

one trustees have least control over. When

company directors see advantages for

shareholders in radical change (takeovers,

acquisitions, break-ups etc.), pension funds

can easily get ignored.

In theory, trustees might hope that the

Pensions Regulator would step in; but in

practice, unless the employer is a “nice

guy” who volunteers for Clearance or is

crude enough to fall foul of Moral Hazard

regulations, the Regulator can disappear

for years into the scheme-specific funding

process and may, even then, emerge with no

more cash.

So a free press is often the only natural

supporter of ordinary pension funds

members’ interests capable of responding

to corporate change at the speed that it

actually happens. Publicity can slow down

management who may be intent on ignoring

trustees, particularly where transactions

involve brand names the public recognises.

Even if management is already set on doing

the deal, bankers will take a hard-nosed

interest in anything that spells trouble ahead

getting repaid.

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Foreign investors may genuinely not realise

that pension fund trustees have to put

members’ interests fi rst, even if management

appointed them. Yet these are complex

messages to convey in a hurry; PR advisers

can help you fi nd journalists who understand

the subject and to explain your own fund’s

position clearly and simply in terms that

minimise the risk of being misquoted.

If the regulatory system could protect

members’ interests as quickly as capital

markets can sacrifi ce them, maybe PR

advisers would be unnecessary; but, until

that happens, more and more trustees are

likely to use them.

Charles AmosChief Executive ICI Pension Fund Secretariat(This article fi rst appeared in Pensions Week)

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markets can sacrifi ce them, maybe PR

advisers would be unnecessary; but, until

that happens, more and more trustees are

likely to use them.

Charles AmosCharles AmosChief Executive ICI Pension Fund SecretariatChief Executive ICI Pension Fund Secretariat(This article fi rst appeared in Pensions Week)(This article fi rst appeared in Pensions Week)

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Pension Scheme reputation management

Being attacked in the press is unnerving

for anyone but particularly so for a pension

trustee - even when they are used to press

intrusion in the day job. Trustee work is

technical and sometimes arcane, private,

and for the most part unpaid. It is often a

struggle even to engage members, so it is

doubly a shock when interest comes from

outside and is hostile. Trustees know better

than to expect much thanks for what they

do, but by the same token they don’t expect

outsiders to put the boot in without warning.

And when it happens they too often find

themselves trapped in the headlights and

with no idea how to present their side of the

story.

But communication is fast becoming a key

requirement, at least for the chairman and

often when it is least expected. One set of

trustees were surprised to read in The Times

that they were being blamed for the near

collapse of negotiations by their scheme

sponsor to sell an under-performing division

when in fact they were only dimly aware that

talks were even underway. It turned out

the private equity buyer was trying to force

down the price in the negotiations by leaking

scare stories about the pension deficit to

deter rival buyers.

The trustees thought as the story was wrong

they did not need to respond to it. This turned

out to be a bad mistake. A few months later

the division was closed rather than sold and

they found themselves roundly abused by

disgruntled employees and trade unions for

blocking a deal which could have saved their

jobs.

What this underlines is that the interests of

the pension scheme can be quite different

from the sponsor, and this gap can become a

yawning chasm at times of corporate activity

like acquisitions or disposals. Perhaps it has

always been like that but the difference is

that these days the trustee is expected to do

something about it. Defending the scheme

members’ interests can involve taking a

controversial public position, often at very

short notice.

This first surfaced as a public issue when

David Norgrove, later the Pensions Regulator,

but at the time chair of the Marks & Spencer

trustees, went public with his reservations

about a highly geared bid proposal from

rival retailer Sir Philip Green, taking a

distinctly different position from that of

the M & S board. Sainsbury trustees were

similarly vocal when that company came

under pressure.

But the best PR is not crisis PR, and when

possible it pays not to wait until the item is

a headline on the ten o’clock news. Trustees

of Royal Mail understand this and have for

months been conducting a discreet press

briefing campaign to explain what will

happen to the pension scheme if its past

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liabilities get taken over by the Government.

They believe this will put them on the front

foot with the press – and through them with

their members who will read the articles - if

and when this happens. It is a lesson other

large funds could usefully learn.

In these cases the trustees are emerging with

their reputation enhanced; but it is not always

like that. While it would be unfair to name

names there are other deals, particularly

related to private equity acquisitions

where pension trustees should have been

more vocal. They have had to endure the

discomfort of being blamed for failing – at

least in the eyes of the media – properly to

represent their members’ interests. Some of

these could easily result in litigation.

Investment strategies can also bring a

backlash. The struggles of the highly

geared Southern Cross care homes business

brought a torrent of abuse down on the

head of Blackstone, the private equity group

which had put the business together in its

current form. More by luck than judgement

no one looked through Blackstone to fi nd

out the identities of the investors in its funds

who were the ultimate benefi ciaries of the

fi nancial engineering but had they done so

they would have found several were pension

funds.

Next time it could be diff erent. Next time a

private equity house or hedge fund blows up

a business, someone surely will ask if it was an

appropriate investment for the pension fund.

The trustees will need to have an answer and

one which satisfi es their members as well as

the media.

It is a little appreciated fact, too, that much

of the money spent by funds on hedging

interest rate and infl ation risk has been

wasted - as funds were duped into believing

the investment banker’s model. If infl ation

returns they will be much more exposed

than they thought and will again face some

probing questions.

It is not the pension trustees’ fault but

in today’s world people have lost faith in

authority, so they want transparency, they

want answers and they are no longer prepared

to “trust the experts.” Being a trustee is no

longer the private occupation it once was.

There are times when the credibility of those

responsible for the fund requires them to

speak out in public. Doing good by stealth

is no longer enough.

Anthony HiltonFinancial EditorEvening Standard

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Why trustees should spend (at least a little) time thinking about PRIt’s fair to say that journalists, like me, and

PR people don’t always see eye-to-eye. But

even I have to admit they sometimes have

their uses.

As a finance journalist covering pensions,

as well as being a trustee myself, I also

know they can be particularly useful to the

pensions sector.

First, a disclaimer. This article is not

necessarily an endorsement of any PR

agency – I wouldn’t even claim every pension

fund needs one.

But it is an endorsement of the idea that

pension scheme trustees, in today’s world,

need to give a little thought to what we

might call the “public image” of their pension

scheme. Perhaps even to developing what

you might call a “media policy”.

That policy can be pretty simple. It could just

be: “If a journalist calls, the trustee chairman

has the responsibility for speaking for the

board”. Or perhaps it’s the company finance

director, or the company press office. Or

perhaps you do want to go all-out and hire

professional help from a PR agency.

But you do need to have some procedure for

talking to the press worked out in advance.

And here’s why.

Traditionally, and for very good reasons, the

only public image that trustees have worried

about is their image among the scheme’s

own membership. Most pension schemes

have no financial incentive to seek positive

publicity more widely. The trust structure

means they do not seek profits; they seek

the best outcome for their members. So

pension schemes will rarely be pro-active

publicity-seekers. They should certainly

never say anything to journalists that they

haven’t already told their members.

But there are clearly occasions when the

best interests of those members are served

by taking the initiative and opening up good

relations with the press.

The first myth to dispel is this: if I don’t talk

to the press, they won’t write about me. No.

If your pension-scheme becomes an object

of public interest, then the press will write

about you whether you like it or not.

There are many trustee boards who have

discovered this. Just ask the Sainsbury

pension trustees, or the Boots trustees, the

BA trustees, who are almost never out of the

papers these days.

And if you don’t talk to the press, be aware:

someone else will.

If unfair, or inaccurate stories about your

pension scheme appear in the papers, your

members might read them.

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Of course, there is always a right to reply.

But pension schemes don’t always make

it easy for us. I have called company press

offi ces, only to be told “we don’t comment

on behalf of the trustees, you need to speak

to them, and no, I can’t provide any contact

details”. I have searched high and low, and

left numerous messages, only to receive

a call back from a curious administrator a

fortnight after my deadline expired.

There are many things you can do to

overcome those problems. Devising a brief

media policy is one. Providing a contact

point is another. You might spend a moment

drafting brief trustee-board statements on

issues you know will prove controversial,

and distributing them to the company press

offi ce for when it announces the transaction.

You might even shell out for a professional

PR agency – especially if you are entering

into a lengthy deal process that could take

months.

But it doesn’t have to always be about

avoiding the risk of bad publicity. And this

brings me to another myth that needs

dispelling: journalists are only interested in

bad news.

Of course, we are interested in bad news – it’s

news. But good news can also be interesting.

I have written plenty of positive articles

about trustees’ hard work on their members’

behalf, and hope to write many more.

The dialogue between pension trustees and

the media needs to improve. Journalists’

sympathy should naturally be more inclined

to lie with the unpaid pension trustee and

the ordinary member. You should get a fair

hearing.

And if you don’t? If you make all the right

preparations and take all the steps outlined

above, but you still you have a bad experience

with a poor journalist who misquotes you

and doesn’t check his facts?

You might, understandably, decide never

to talk to any journalists again. But there

is a far more eff ective way to express your

displeasure – which will punish the bad

journalist as well as hopefully setting the

record straight. Talk to his rivals instead!

Mark CobleyPensions Editor of Financial News, a Dow Jones publication, and a member-nominated trustee of the Dow Jones UK Pension Scheme.

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Communicating with pension fund members

Pension fund members are a diverse set of

individuals. Even within a fund they can vary

hugely in class, age, education, interests and

also, perhaps more importantly, in general

financial confidence and specific knowledge

about pensions.

Some of the beneficiaries will not even be

the original members - they could be the

spouse or financial dependant of the original

member. These people will possibly have had

little to do with either the pension fund or

sponsor and may not even remember the

name of the fund.

Let’s face it: pensions can be complicated.

Even amongst the active and deferred

members of a pension fund there will be

many who do not understand the subject

and some who feel they have never had

good advice.

Some may feel it is the responsibility of the

trustees to explain everything in more depth.

By taking into account this lack of

comprehension and knowledge, trustees and

insurers have the opportunity to ensure that

their communications are clear, engaging

and contain genuinely valuable information

in an easy-to-understand way. The benefit of

communicating in this way for trustees, and

by extension for an insurer during a pension

insurance buyout, is that they will gain the

trust of their members – a difficult commodity

to gain and one that can be harder to retain,

but easy to lose.

For an insurer post-buyout, first impressions

really do count. It is vital to explain what

the buyout means for members, what the

transition from pension fund member to

policyholder entails and how long it will last.

Issues which should be addressed include:

Is my pension safe?

Will it be reduced?

Will the trustees still be in place?

Will my spouse and / or dependants still be

provided for?

One of the key points to get across is that

members are not dealing with a faceless

institution – that someone will be available,

either on the phone, by email or letter, to

help in case of problems, and that most

importantly there is someone who is

accountable.

But best practice does not just mean sending

out letters, however well written. It might also

mean senior members of the team speaking

at pension fund AGMs or inviting members

and policyholders to events put on by the

insurer, as we have done.

We have found that about 50% of our

policyholders use the internet on a

regular basis, although very few view it as

indispensible.

1313

They use it for keeping in touch, shopping,

banking and general information – very much

as do other demographics. This suggests

that in time the internet will become a good

means of communicating with fund members

and it is prudent, where there are resources

available, to start preparing for this, as we are

doing by developing a member log-in page on

our website.

Our policyholders are very clear with us – when

we communicate with them there is a genuine

desire for help and concise information.

The key points to gaining the trust of pension

fund members or policyholders are clarity,

brevity and relevance, whatever the form of

communication.

Matt GoreChief Administration Offi cer

Pension Corporation

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CASE STUDYDelivering internal communications

Universities Superannuation Scheme

(USS)

Changes to the Universities Superannuation

Scheme are due to take eff ect from October

1st 2011. This means a busy period for USS

Communications Manager, Colin Busby,

and his team, who have been working on a

detailed plan to communicate the planned

changes both to the scheme’s 285,000

members and to their employers – nearly 400

of Britain’s universities and higher education

institutions.

Embarking on such a huge and complex task

required a detailed internal communications

strategy. Colin and the team identifi ed the

pivotal role of the university staff who deal

with USS members on a daily basis – and

who must therefore understand the planned

changes to be able to answer any questions

from eligible employees.

The strategy for informing these crucial staff

includes:

1. Producing a checklist of 8 important

actions that institutions must take in

preparation for the scheme changes on

1 October 2011. The list identifi ed the

changes that would be required to payroll

systems to accommodate the new rules.

2. Arranging regional workshops during

August and September to explain the

changes in benefi ts and identify the

administrative implications – on, for

example, fl exible retirements.

3. Updating sections of the USS website

and the scheme’s “eManual” to include

amendments to any forms that are

aff ected and updates to the explanatory

notes refl ecting the changes.

But it was also important to identify ways to

reach members directly.

“Most members prefer face to face

communication and that’s why it’s

important to make sure institution staff

are properly supported”, Busby says.

“The USS communications team has the

capacity to provide on-site presentations for

members at the larger institutions, but this

is just not practical on a large scale. Paper

communication is still the most reliable way

of reaching a large number of members but

this can be supplemented by email with the

cooperation of institutions.

“A signifi cant number of members will visit

the USS website to obtain general information

about the changes and to fi nd out how the

changes might aff ect them personally. A

combination of the annual service statement

and a new benefi t modeller will answer many

of their questions.”

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CASE STUDYA printed summary of the changes was

enclosed with the annual service statement

dispatched to institutions in June, and a

PDF version of the same document was

posted on the USS website and emailed to

institutions for distribution specifi cally to

eligible employees who do not receive a

service statement.

The service statement encourages members

to go to the USS website and use the benefi t

modeller. This tool has been re-designed

and updated to incorporate the later normal

pension age (NPA) so that members can see

how retiring before the new NPA might aff ect

them. Another new modelling tool is being

developed to illustrate the way benefi ts build

up in the Career Revalued Benefi ts section of

the scheme. These new tools will be available

before 1 October 2011. A programme of

member presentations is also underway

and will be available to all institutions

with a signifi cant USS membership. The

presentation explains the scheme changes

and how they might aff ect members. During

and after the presentation members have

the opportunity to ask questions.

A video explaining the scheme changes

is being produced for the USS website. In

addition there will be a major update of the

website to incorporate the changes. This will

include new navigation to allow members

to see the benefi ts they are entitled to

depending on which section of the scheme

they are in. A new set of Q & As is also being

added dealing with anticipated questions

from members. Staff at the scheme’s AVC

provider have also been briefed on the

scheme changes, to ensure they are able

to handle enquiries from scheme members

on their AVC position, as have fi nancial

advisers who participate in the arrangement

USS has with the Personal Finance Society.

All relevant USS printed material is being

revised, including a new guide for members

and updated factsheets. Again, PDF versions

will be posted on the USS website and paper

versions will be delivered to institutions.

Finally, the Members’ Annual Report

for 2011 will be distributed to all current

members in October, including deferred and

retired members, and will include a section

explaining the scheme changes.

“Devising and implementing such a big

communications project in such a short time

is challenging enough”, Busby admits. “To be

doing this in the Summer, when many of the

institutions and members are on holidays, is

an added obstacle to overcome. The key is to

use all the means of communication at our

disposal, and we think this strategy puts us

in a good position to do just that.”

MHP Communications60 Great Portland Street

LondonW1W 7RT

0203 128 8000www.mhpc.com

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