Endgame? No, a New Beginning

When Running on with Purpose Beats Buyout
Members and their trustees should ask for added benefit payments 
Where is your trustees’ journey plan taking your scheme’s members?  The Gold Standard endgame is presumed to be annuitisation .But running on can beat selling out to a life insurer.   
Where the sponsor is strong, seeking the expensive buyout prize of the regulatory upgrade from Pension Protection Fund backup (well funded) to that of the Financial Services Compensation Scheme (untested) brings few carats and many sticks. The change is hardly relevant for members if there is already a major group involved firmly tied in by the Pension Schemes Act 2021.  How do you then assess best interests of members?  Think what is lost in annuitisation apart from cash: 

• Corporate memory of the scheme. 
• The possibility of improved benefits for members. 
• Member input through trustees into where funds are invested – a growing factor. 
• Control over who is providing the pension as control over sell on is lost. 

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And what’s the rush?  With the increased possibility that Solvency II regulators will become less restrictive, buyout funding pricing should improve.  And the long years of ever falling discount rates have ended. 
So before accepting the “derisk and get rid” route, members should want to know their trustees asked for more.  With inflation back, are discretionary increases from surpluses in the schemes a possibility?  Why not?  Is there an alternative?  Yes.  There is a practical way forward to have a bespoke, run on solution. 

• Sponsor / trustees obtain a risk diversifying back up sum to cover any gaps to low dependency from a major financial institution. 
• Reset the investment strategy to “run on” with a stable, low risk, FiduciaryPlus contract led by a leading asset manager. 
• Plan for success.  Write into the rules now how surpluses over agreed funding levels are to be allocated to members, old and new.  Benefits can accrue ahead of becoming payable with surplus allocation assessed. 

And will sponsors be interested?  Yes – if running on means that surpluses can be used to fund current contributions into a reactivated, repurposed (C)DC tier of the scheme.  Sponsors have made S172(1) commitments to look after employees’ interests and have ESG frameworks in place.  Pensions are back on Boardroom agendas because intergenerational fairness is a big issue.  The fear and uncertainties surrounding pensions, developed over 20 years, can be addressed in a better strategy.  Its time to reconsider what is a rewarded risk 
DB pensions need not be an endgame run by the derisking tribe – but can bring a new beginning in all stakeholders’ interests.  Not the end; not a game.  And it starts where trustees re-examine what is in the best interests of members and think ahead.  Run on with purpose.