Bulk Transfer V Run On 4 Good : Time for members to be activists

• Bulk transfer deal : Makes no sense now for members of many larger schemes.

           – Give up control and the embedded value of a well-funded scheme.
           – Give up recourse to a well-financed sponsor.
           – Give up stop loss of the well-funded PPF.
           – Give up discretionary payments.

          For

• Financial Services Compensation Scheme.

          – Unfunded; Untested; Sector concentration risk; No Government guarantee.

• Run On 4 Good : Major boost to members and the economy.

          – Surpluses over time can be shared between members and sponsor.
          – Higher allocations to UK productive assets bringing UK capital markets revival.
          – Long term stable returns provide quality asset management work.
          – Attraction to Government in greater economic activity, higher tax revenues and gilts market stability.

• Catalyst for change:  Successive Governments explicit requirements on actuaries to compare bulk transfers and run-on (TAS300V2 P5) - Risk-Benefit modelling. 

          – Numbers change trustee fiduciary duty assessment and sponsors’ S172 and financial calculations.
          – Bulk transfer endgames could go into extra time and be subject to member and shareholder challenges.
          – Members should ensure trustees and sponsors ask the TAS3300V2 questions and implement the answers.

Members be activists: Campaign for DB pensions to work in all stakeholders’ interests.

These were the themes I covered when speaking in favour of Run-On at the M&G client Day as part of “The big debate: Is Run-On a better option for large scheme DB members than Buy-Out?” 

On Pension Playpen on 27th May, ​C-Suite Pension Strategies set out 10 initiatives to ally pensions and growth and introduced “The Gruffalo’s Grandparents”.  

You can watch the debate on Henry Tapper’s blog:
McGrath keeps actuaries honest (warning blunt video inside) | AgeWage: Making your money work as hard as you do

The How To Run On 4 Good Guide for Regulators

The 10 initiatives to ally pensions and growth set out by C-Suite Pension Strategies require:

Scrutiny of actuarial numbers – it has taken 250 years to reach the pilot stage.  But suddenly it matters.  £50 billion a year is being syphoned off by wily life insurers from DB pension schemes.  But look at the numbers and it does not make financial sense for members, many sponsors or the economy.  So what. Fiduciary duty and regret risk anxieties keep trustees in thrall to the risk transfer industry.  But now Government regulations require a bulk transfer against run-on comparison and the results have to be available.  A maths-based risk-benefit analysis is a great therapy to deal with incessant consultant use of fiduciary duty and regret risk to sell FUD based plans. (Fear: Uncertainty: Doubt.) 

Ask the relevant question of the actuary, “where are the numbers?”  Numbers count and tell stories.  Actuaries will realise they need to know what are the probabilities of less and more?  What can be done to influence the calculations?  What will upcoming Government action do to change the analysis?  What are the credible alternatives to get rid ASAP of which Government speaks?

And what follows from scrutiny of actuarial work?  Better pensions for past and present employees.  And with long termism re-established there is more money for UK productive investments to help the growth agenda.  That is something Government can encourage by linking incentives on risk reduction and the exercise of discretion to asset allocation.
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No need for informed trustees to fold.  Work up a package of proposals which takes your members’ best interests into account in the context of an appreciation of all stakeholders’ position. That enables you to work within the existing fiduciary duty legislation and enables you to address regret risk because the decision was based on the best available data.  Time for some activism.  The ARGA Bill should finally give a statutory back up this year to the scrutiny of actuaries’ work.  But there is no need to wait.  They have already Technical Actuarial Standards with which they must comply.  You are entitled to the evidence.