Technical Actuarial Standard 300 V2 came into force in April 2004. It is reflective of changed public policy. Actuaries advising schemes and sponsors on bulk transfers and journey plans which lead to them must consider credible alternatives. They have to provide evidence that the work has been carried out. Run On 4 Good is a credible alternative. The switch from the PPF to the FSCS safety net has a steadily declining worth yet it is central to the case for bulk transfers. The maths is very rarely set out. Now with the probability of more from discretionary payments from surpluses being high and the probability of less, remote, trustees need those numbers. C-Suiteps Analytics addresses the subject. Consultants are floating run-on idea with limited conviction while driving their risk transfer businesses in a £50 billion a year market. Where is the maths? You should ensure that they do address the relevant information that you have a duty to consider. TAS300 V2 is a timely challenge to actuarial thinking and to the risk transfer industry. Run On 4 Good involves a new, long term asset management strategy; surety back up and discretionary payments. It aligns DB schemes with sponsor ESG strategies. Set out below – using public sources – is a summary of what’s happened to one mainstream DB scheme. All explicable but a sub optimal outcome for employees past and present. And a story of how distorted resource allocation can be for sponsors. Sugary, mutual admiration packed press releases are a staple diet of risk transfer professionals. Where’s the beef? Our case study suggests new recipes are needed. A TAS300 V2 Case Study : No name needed because the points are so generic £165m buy-in of a Sponsor Co UK pension scheme with a major life insurer was undertaken in April 2024. The lead advisor must have carried out a TAS300 V2 assessment to meet FRC set actuarial regulations. Did the trustees and sponsor have the evidence of a bulk transfer / run-on comparison from their advisor? It should have provided a risk-benefit analysis for stakeholders explaining:
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10 Year Pension Scheme Summary
William McGrath presented to Pension Playpen on how the maths and governance impacts of new Technical Actuarial Standard 300 V2 can drive pension strategy resets. The full webinar and discussion can be seen at “An endgame for the endgame” – McGrath demands a new outlook from trustees and corporates | AgeWage: Making your money work as hard as you do (henrytapper.com) There is value for sponsors and past and present employees in getting stuck in
What to do with surpluses in old Defined Benefit pension schemes? It’s a question Government has put to the pension industry and sponsoring companies in a formal Consultation ending on 19th April. There is a positive answer. Use them to increase pensions and improve pension provision massively for today’s employees at a reducing cost to the employer. There is £300 billion at stake. The summary is “Run On 4 Good” – keep going steadily on, aiming for stable long-term returns. Then, as excessive optimism about life expectancy becomes ever clearer, the scheme’s trustees will see the scheme has more money than it will ever need. What a great chance to invest in what Government sees as productive assets – like infrastructure. Then set about addressing, with the sponsor, intergenerational unfairness in pension provision and raising pensions- all in a new deal. And it will happen. Provided there is not a public policy error after the Consultation which allows sponsors to syphon large sums back to their Global HQ and still hand pension schemes over to life insurers. Sponsors are big winners. Companies and today’s employees can benefit from DB surpluses paying more and more of their pension contributions as well as discretionary improvements being made to pensions in payment. For scheme members the ultra successful Pension Protection Fund with its £12bn surplus is there covering more and more of remaining payments even in the unlikely event that the sponsor disappeared. And if a scheme can afford a buyout, it can afford not to. Better to ensure the sponsor’s Board see the scheme as a worked example of ESG policy in practice, aligned with its people and environmental priorities. It is a corporate wealth fund. So the case for buyouts has collapsed with surpluses – unless you are part of the cosy, well-heeled actuarial consultancy / life insurer pension axis. A parliamentary Select Committee reported in April concluding too much regulatory caution had largely killed off good pensions. We should not be here. But we are. The art in pensions is to take your time. Exercise discretion. Don’t over commit. But past and present employees should expect more. The pension industry remains obsessed with ‘Endgames’. But it’s not the End and it’s not a Game. Plenty to go for. The downside is remote and falling; the upside can be significant and immediate using existing trustee powers when there is sponsor backing. Members can be impactful. When pensions were just about trustees protecting past benefits, member engagement was modest. And now? Just let employers and trustees know you are keen to hear about their new opportunities to exercise discretion. The Government is rethinking its approach. There is also value for members in getting stuck in. Run On 4 Good |
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