I had, I have, I will have : A critique of the buyout journey plan

Defined Benefit Pension Risk Transfer Journeys for Members

Why didn’t we stay put?  What did the actuarial advisors’ Technical Actuarial Standard 300 Version 2.1 review comparing run-on and other Credible Alternatives with bulk transfers show?  Did it justify the move from buy-in to buyout?  Where is the trustees’ own work on risk-reward / cost-benefit?  TPR guidance says it is part of the job.

Investment outperformance over low dependency calculation and prudence in longevity assumption can result in a large surplus.  Why can’t members have a value share with either a sponsor or life insurer?  Were Value Sharing proposals put to the sponsor?

The case for run-on is powerful for members / trustees.  It is also compelling for sponsors and Government.

All stakeholders can benefit from a readiness to Share Value

From Sponsor’s Perspective:

• “Derisk and get rid ASAP” has been an expensive and defensive strategy.  Look at the track record of the scheme and ask questions.  Needs reassessing in changed circumstances – as scheme is fully funded to low dependency and beyond.  Hedged position makes major reversal very unlikely.
• Accounting:  P/L; cash; balance sheets have minimal volatility and risk.  A sustained profit stream can be generated.
• Discretion:  Value share arrangements can provide long term earnings stream and reduce cost base.
• DB to CDC or added auto arrangement funding excellent for ESG credentials.
• Now possible to sell out to regulated insurer : take scheme off balance sheet and maintain long term earnings stream through value sharing.

From Government Perspective:

• UK growth is a central strategy feature.  The embedded value in DB schemes can provide impetus.  The resources and administrative infrastructures are already in place.
• Provide incentives to help trustees with their fiduciary duty work.  Life insurers can maintain a lower cost base if UK asset allocation kept at required levels.
• Surplus payments to members and above allowance surplus payments to sponsors generating taxable income.
• Avoid adding to concentrated systemic risk in expectation that Government will “bail out” life insurers and / or their customers.

TAS300V2.1 requires bulk transfer v run-on comparisons: TPR guidance requires risk-reward assessments of “new models and options” for defined benefit pension schemes.  HMT / HMRC are supporting surplus sharing.

Stakeholders need financial models covering plausible downside and discretionary upside.  C-Suite has devised them.