The Derisking Overshoot and the Bounce Back Opportunity

Defined benefit pension schemes were a major force for good for a generation, providing secure pensions, funding corporate development and boosting the City. By the late 1990’s some switch from equity to bonds was needed. Tax incentives and actuarial methods had pushed equity exposures too high. But the subsequent derisking overshoot proved costly and unnecessary for DB pension schemes. Now its all about “the endgame”.

The big winners have been life insurers; fixed income sales teams and actuarial consultants. Employers have been “suckered” and “bullied” into overfunding schemes. Employees, past and present, have seen what for most were remote problems, solved to a fault – precluding any discretionary upside for them from surpluses.

We are where we are. But giving yet more riches to life insurers and their mysterious off-shore re-insurer partners is not for the best. Instead, Run On 4 Good. That means a new framework and package of proposals to meet all stakeholders’ interests. And the key is corporate re-engagement. Trustees and their lawyers agonise themselves into super caution because of the lack of relevant statute and the hazy nature of the case law. The answer is to change the question rather than seek another “maybe” answer. Corporates provide the modest added contingent sums to cover worse case scenarios. Then reset to a more positive, mainstream, run-on agenda.

Sunny Uplands Are Now Available

Expect investment returns and actuarial demographic prudence to mean the DB fund returns 2% more than the actuarial low dependency model a year. 

Ask for new asset management plans. Invest with a growing proportion of assets allocated to UK and Impact funds with longer time horizons. That can mean 1.5% to 2% more return. Asset managers will be delighted with a competition for a long term deal to look after the money.

Exercise discretion. Plan for the scheme to pay all its own costs (including new sponsor guarantee costs recharged) and then make added payments to pensioners (over 0.5% of assets a year allocated will equate to a 10% increase a year) with the rest funding and improving current pensions.

Sponsor arranges a fixed sum surety bond to cover the remote chance of its demise or it not making contributions calculated on the basis of set actuarial and investment strategy assumptions.

Ask the game-changing question

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

Arrange a TAS300V2 Exercise. It is Compulsory and Strategy Changing

TAS300V2 is compulsory. Actuaries have to research and evidence bulk transfer vs run-on options. For many trustees and sponsors the data will be alarming and strategy changing.

Our partners provide TAS300V2 exercises and viable alternatives to risk transfers – introducing compelling new strategies. Get in touch to explore further.