Don't Derisk. Reopen your pension scheme

An opportunity to help today’s money purchase employees may emerge as the fog around the prudence of the actuary is cleared by new disclosure rules in place since July this year.

Does a scheme with a strong sponsor and asset base and a clear-cut payment profile really need more doses of derisking?  Best estimate actuarial assumptions may show that having surplus resources is now as likely as having a deficit arising.  Yet derisking is so much the industry norm that there is a one-way flight plan to annuitisation. 

What about keeping steady, long-run investment strategies and letting surpluses emerge - an approach rarely considered.  But it should be.  Deficit clearance is a statutory requirement; anything else is a choice.
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The pension pots of today’s employees need more support and attention.  Give it by reopening schemes to new entrants on a money purchase basis and enhance existing money purchase tiers.  Ensure the rules allow surpluses to be used to the benefit of all members - the risk of trapped surpluses can thereby be dealt with.  Then, once more trustees will be interested in employees of today as well as yesterday.  The pensions industry can redefine its ambitions.
 
“A new positive pension approach aimed at building on embedded value and structures already in place is possible.  Work to find the best formulae for funding pension provision for all should be back on the agenda.  For stronger companies reviewing their pension stories, annuitisation need not be the closing chapter.”  William McGrath, Founder C-Suite Pension Strategies