“Although much has changed since we started working with Mercer, in the 1960s, the objectives of Merseyside Pension Fund – to provide secure pensions at the lowest cost to our employers – has remained consistent. It’s the way we go about that which has changed constantly,” says Yvonne Murphy, Head of Pensions Administration for the Fund.

 

“When I started working for the Fund thirty-five years ago, we had just moved from a five-yearly to a three-yearly valuation programme with Mercer and the Fund had a single shared computer, which only a limited number of people were allowed to touch.” says Yvonne. “Now we’re working with Mercer on a weekly, if not daily, basis and everyone has a laptop so they can work from home and conduct virtual meetings.”

 

In addition to the transformation in the use of technology, the makeup of the 140,000 members of the £9bn fund, which serves over 200 employers, has also transformed beyond recognition, says Yvonne: “Our members, who range from public sector charity workers to large district council employees, used to be predominantly male, full-time employees, in a job ‘for life’. Now only 47% work full-time, 72% are female and individuals come in and out of the Fund as their career takes them to different employers.”

 

The complexity of the Fund has changed due to historical protections and changes to tax-free pension savings, which have had a significant impact on individuals. The biggest change, however, was the implementation of new risk management strategies, devised by Mercer, to keep the cost of employer contributions down after the 2008 financial crash.

 

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The biggest change was the implementation of new risk management strategies, devised by Mercer, to keep the cost of employer contributions down after the 2008 financial crash.
Created with Sketch.

 


Weathering the financial crash

 

“The 2008 financial crash resulted huge volatility in the Fund’s investments and the introduction of austerity measures,” says Yvonne. “That meant, at a time when the government was making huge spending cuts to public sector funding, our public sector employers were also being asked to pay more money in to keep the Fund going. Also the surety bonds for some employers became significantly higher due to the increased risk, with employers that had been paying a bond of £10m a year being asked to pay £20m. So we asked Mercer to help develop a strategy to keep contributions stable and also manage risk.”

 

In response, Mercer helped to devise different investment strategies (including an equity protection strategy), to move the risk into different ‘buckets’. “The risk management options resulted in much more stable and affordable costs, compared to the last actuarial valuation,” says Yvonne. “We were able to protect the Fund, without pushing employers into insolvency. Mercer was able to help us give our employers continuity, so they could budget for the next three years, without huge fluctuations in the pension contributions they needed to make to keep the pensions secure.”

 

She adds: “The Fund also performed well because of the investments made by our internal investment team, which meant it played its part in reducing contributions and preventing further cuts to public services. Mercer continues to help us get the balance right between protecting the Fund and ensuring contributions remain affordable for the councils and other public sector employers we serve. They have been with us every step of the way on that journey with employers. Helping me present to employers the funding requirements and to listen and take account of the challenges those organisations are facing in meeting their financial obligations.”

 

Over the years, Mercer has helped Merseyside Pension Fund to deal with many complex issues: “Mercer are always there to support us, whether it’s an urgent call for information or help to understand a complex development. Although I often challenge them on new areas, I trust them implicitly and my sentiment is: Why have an advisor if you don’t trust and use their advice?” says Yvonne. “When we went out to re-tender, Mercer were competitive on price and stood out as having the best understanding of the challenges facing the Fund.”

 

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Mercer continues to help us get the balance right between protecting the Fund and ensuring contributions remain affordable for the councils and other public sector employers we serve.
Created with Sketch.

 


Preparing for future challenges

 

Risk management is only going to become more important due to Covid and Brexit, says Yvonne: “There’s going to be a massive impact on funding and market volatility, so we’ve already started looking at deferred debt options and lobbying to bring forward legislation that will allow organisations that cannot afford to continue participating in the Fund leave early, for example those with only one remaining employee.” The legislation on employee exit payment restrictions is going to be one of our biggest challenges over the coming 12 months. So, the support and advice materials provided by Mercer will be instrumental in creating the required actions, work-plan and communicating the issues to employers and members.”

 

Another challenge will be dealing with the McCloud judgment, which ruled that government public sector pension reforms unlawfully treated existing public sector employees based on their age. “It’s going to be a mammoth challenge, reprocessing member benefits for 34,000 employees for the last six years, from getting the data in to doing the recalculations,” says Yvonne. “I would hate to think how I could face these challenges without the ongoing support, expertise and innovative advice from Mercer.”

 


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