Blog Archives

Defined Benefit pension scheme public policy has changed. Endgame thinking has dated.

29/8/2024

DWP Regulations require from September 2024 a Funding and Investment Strategy. Buyout or buy-in plans require actuaries to provide comparisons of bulk transfers and run-on longer options. Technical Actuarial Standard 300 Version 2 can be transformational. Running-on and providing positive use for surpluses arising is supported by Government.

The ultra high profits of life insurers from taking over pension schemes is now an issue all should note. Simply handing money over to them without sufficient analysis is likely to come to be seen as a mistake which reflects badly.

Sponsors are required to be involved in setting the new Funding and Investment Strategy and should be positive.

That work will show:

The probabilistic benefit to members of having a life insurer as opposed to the corporate sponsor (with their respective safety nets of PPF and FSCS) is modest and falling.
In contrast the upside to sponsor and members of running-on and using surpluses (to improve benefits and reduce or eliminate sponsor pension costs including those for current DC employees) is real and available.
The Board needs a briefing paper covering the financial evolution of the scheme (annotated accounts extracts), summary of where it is now ad the investment strategy currently set.

What can happen next:

With the company providing such back-up as needed to eliminate trustees’ anxieties the pension professionals have exploited so profitably attractive long term plans can be put in place.

The Board can decide whether its DB scheme can provide a great worked example of its ESG ethos in practice – including generating a competitive advantage of offering improved pension provision, alongside the objective of eliminating pension as a continuing cost to the company.

The Board resets the remit of those directly involved by asking for a long term plan and indicates it can provide the back up needed.

Expect trustees to provide a new approach and have your own point person ready to work to put it in place.

A TAS300V2 Case Study

TPR Played a Blinder But PPF No Longer Needs its Minder

7/8/2024

TPR played a blinder. It has a role to reduce the risk of calls on PPF. So it convinced the pension industry to ignore PPF's existence even as sponsors funded it. Great loss adjuster work. Helps the risk transfer industry. But why did all those clever pension lawyers and consulting actuaries fall for it?

Now public policy is changing and TPR has moved on. Paragraph 64 of “The Funding Regime” section of the new DB Funding Code sets out a sensible position, which was probably always the case. How to see the PPF? The reality remains the same. It's the spin that's changed. And why has the policy changed? Looks like someone has been checking precedents.

Referring to the case of Hope-v-Independent Trustee Services : 2009, Para 106 / 119:

“There is no single all-purpose answer to the question whether the PPF is a relevant consideration……. It all depends on the context and the purpose”
“…..the PPF is in certain contexts a legitimate matter for trustees to take into account…..”

The Judge wanted to avoid “the dangers of invoking public policy in relation to a situation which is not before the Court”. The position was re-iterated in Brass-v-Goldstone 2023.

Paragraph 64 means that in TAS300 V2 actuarial exercises the probability of loss and gain can be assessed without a folklore-based assumption there is no safety net.

“64. When performing their duties under Part 3 of the Pensions Act 2004 , trustees should not take advantage of the existence of the PPF as a justification for acting in a way which would otherwise be inconsistent with those duties.”

PPF is a success and no longer needs its minder.

Ask One Question to Improve Your Pension and the Economy

7/8/2024

With one question past and present employees of companies with defined benefit pension schemes can increase pension payments

Public policy has changed. Actuaries can no longer wave through bulk transfers to life insurers. They must now evidence a comparison of “get rid” transactions with sponsors sticking with the scheme. The maths for a risk-benefit analysis backs run-on with long-term investment strategies and the use of surpluses over time to up pension payments.

Corporate sponsor and trustee engagement and a policy reset are needed. A regulatory policy upgrade for actuaries from April 2024 requires it. The incentive is there to keep asking them and trigger the process that leads to change – no need to swot up on the detail:

“What are the conclusions of the Technical Actuarial Standard 300 Version 2 exercise?”

All stakeholders will benefit from the answers.

“The cost of leaving the pension industry to its own devices has proved high. Now one question to actuaries collapses its Giant Jenga tower. Excellent public policy changes made over the last 18 months mean defined benefit pension funds can help provide stable, economic growth. Members should let trustees and sponsors know they are on the case and have high expectations.” William McGrath, founder C-Suite Pension Strategies and formerly CEO of Aga Rangemaster Group plc

NB: Schemes can generate 1.5% to 2% above low dependency actuarial discount rates when they “Run On 4 Good”. Current actuarial analyses of strategic risk-benefit have major gaps – bridged by C-Suiteps Analytics.

0.5% of assets a year used to improve pensions can equate to a 10% increase.
10% more scheme investments in Government identified productive assets classes would be £140 billion.