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.

​Technical Actuarial Standard 300 V2 came into force in April 2004.  It is reflective of changed public policy.

​Actuaries advising schemes and sponsors on bulk transfers and journey plans which lead to them must consider credible alternatives.  They have to provide evidence that the work has been carried out.  Run On 4 Good is a credible alternative.

The switch from the PPF to the FSCS safety net has a steadily declining worth yet it is central to the case for bulk transfers.  The maths is very rarely set out.  Now with the probability of more from discretionary payments from surpluses being high and the probability of less, remote, trustees need those numbers.  C-Suiteps Analytics addresses the subject.

Consultants are floating run-on idea with limited conviction while driving their risk transfer businesses in a £50 billion a year market.  Where is the maths?  You should ensure that they do address the relevant information that you have a duty to consider.  TAS300 V2 is a timely challenge to actuarial thinking and to the risk transfer industry.

Run On 4 Good involves a new, long term asset management strategy; surety back up and discretionary payments.  It aligns DB schemes with sponsor ESG strategies.

We produced a case study  – using public sources – to summarise what happened to one mainstream DB scheme.  All explicable but a sub optimal outcome for employees past and present.  And a story of how distorted resource allocation can be for sponsors.

Sugary, mutual admiration packed press releases are a staple diet of risk transfer professionals.  Where’s the beef? 

Our case study suggests new recipes are needed.  

£165m buy-in of a Sponsor Co UK pension scheme with a major life insurer was undertaken in April 2024.  The lead advisor must have carried out a TAS300 V2 assessment to meet FRC set actuarial regulations.  Did the trustees and sponsor have the evidence of a bulk transfer / run-on comparison from their advisor?  It should have provided a risk-benefit analysis for stakeholders explaining:

• What is the modelled probabilistic risk to the value of members’ pensions which the transaction addresses?  How do these calculations assess the risk of investment grade credit of the large European parent failing to support the UK subsidiary in meeting its obligations?

 

• What is the probability of a scheme funded to buyout levels being able to make discretionary payments to members over time if it has a run-on strategy?  Could resources be available to fund better pension provision for current employees? Could more assets over time be invested in productive assets?

 

• On what basis did the advisor conclude the chosen life insurer’s pricing was attractive ahead of expected changes to solvency and reinsurance rules; easing of regulations on the use of surpluses and the reviews of how FSCS and PPF operate? 

 

• Did the TAS300 V2 exercise note the high profit levels of insurers in an overheated market?

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• Did the advisor research any credible run-on options as TAS300 V2 requires?

NB

• Sponsor Co Global has a market capitalisation of over £2 billion.  It is an investment grade credit.  
• Sponsor Co UK contributed over 5 years £50m in cash to the scheme’s £170m in assets as at December 2022. The sums if held in escrow in cash would have avoided a near 35% reduction in value as gilt yields rose.
• Pension contributions of £77m have over 10 years exceeded pre-tax profits and have exceeded DC scheme contributions by 5 times.  
• Current pension benefits are £10m.
• A run-on strategy with 2% of assets a year to be used on a discretionary basis could fund completely higher DC contributions and add over 10% to pensions and pay all admin costs.

William McGrath presented to Pension Playpen on how the maths and governance impacts of new Technical Actuarial Standard 300 V2 can drive pension strategy resets. 

​The full webinar and discussion can be seen at ​“An endgame for the endgame” – McGrath demands a new outlook from trustees and corporates | AgeWage: Making your money work as hard as you do (henrytapper.com)