Rothesay. Protecting Pensions. From What Exactly?

And at what cost?

The proposition:  Give us all your money and we will provide a better safety net than the one you have already paid for.  It only has value if the sponsor is run out and the investment strategy is ‘middle stump out of the ground.’  And employees past and present can play and miss quick runs of discretionary improvements to their pensions built up through years at the crease.  

Look at the risk-benefit score card now part of the laws of the game.  Then go to the third umpire and consider “Credible Alternatives” to get rid ASAP.  No time for a drinks break with the sponsor.

NATWEST TROPHY

Rothesay became an UNOFFICIAL PARTNER of NatWest in 2024 with an unannounced deal, under which they were paid £10.4bn to take away £8bn of liabilities booked in the bank’s accounts.  A NatWest Trophy winner.  Read the story of how actuarial and accounting standards can be exploited or sidelined.  Disclosures Require an Upgrade : Pension Risk Transfers

Rothesay UK’s Largest Pension Insurer
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Owned in Singapore and Massachusetts.  How’s that?

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DB Pensions:  What's the Best Guarantee?

“Guaranteed”; “absolute confidence”; “peace of mind”; “protecting pensions.”  That's the sales pitch for buy-ins / buyouts provided by life insurers.  It is the “Gold Standard”.  The messaging is relentless.

Now that Government regulations require bulk transfers v run on comparisons, finally there is some scrutiny.  And the Gold Standard has fewer carats than you might think and run-on is often better on risk grounds.  

The Financial Services Compensation Scheme is unfunded.  Critically it has no Government guarantee.  It is also untested.  The “we'll sort it out at the time” approach is a cause for concern.  FSCS can decide on how liabilities are valued and whether any levy required is paid.  Eligibility is complex.  FSCS’s coverage can – and has – been changed overnight by Government.

The failure of FSCS to work as expected is the only way a major hit to pensions paid can arise.  A financial meltdown is when contractual sub clauses have to be read.  Remember buy-in deals often under-address collateral, transferability, use of funds and ability to unwind because of the aura of its Guarantees.  Peace of mind?

Trustees and sponsors should check their actuarial consultants and lawyers recognise the issues.  There needs to be high quality contract work. 

Once you realise that certainty is not quite as certain as advertised, scheme members need to look at what they give up to have something less than absolute confidence.

Think long and hard before abandoning the sponsor guarantee provided to you through a statutory Pension Act requirement.  See the value of the PPF stop loss.  Reflect on the scope for discretionary payments.  It is a strong package.  PPF is extremely well funded and run with a levy linked to all pension schemes not just the financial services sector.  Its cover keeps rising.  The probability of needing it anyway is negligible for many schemes given their funding positions and sponsor covenant strength.  Pension schemes, given time, can keep the scoreboard ticking over for pensioners and add to current pensions by the use of discretion.  Something Government is encouraging.
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Protecting pensions from getting better for members while life insurers and reinsurers prosper mightily.  Don't play and miss and don’t give away a winning position by being psyched into an early declaration.