- New report aims to support trustees and schemes with the increasing range of liability settlement approaches open to them
- Broadstone welcomes moves towards public sector consolidator, especially to support smaller schemes with end game options
Broadstone, a leading independent financial services consultancy, has today released a report to guide pension schemes through the range of approaches they could take towards a long-term settlement of their liabilities.
Broadstone, which advises over 500 clients and holds one of the largest number of scheme actuary appointments in the UK, said that because the funding landscape had improved dramatically over the past few years, schemes now have a number of new options available.
Alongside the newly published Funding Code from The Pensions Regulator focusing on long-term funding and investment strategy planning, there is renewed impetus on end-game planning.
Broadstone’s guide – Settlement options for pension schemes – covers:
- Insurance: the traditional route for securing pension scheme liabilities – tried, tested, but potentially expensive;
- Scheme run-on – low risk: allowing a scheme to continue, potentially until the last pensioner dies, in a low-dependency state;
- Scheme run-on – higher risk: allowing a scheme to continue for a defined period so that an insurance transaction is cheaper and could be used to improve benefits or provide surplus to sponsors;
- Commercial consolidators: passing a scheme over to a for-profit consolidator, removing risk in an alternative way from the traditional insurance route;
- Public sector consolidator: Passing a scheme over to a public sector consolidator run by the PPF. Not yet in operation but being considered by the Government.
The best option for each scheme will depend on its particular circumstances. The report aims to help trustees and sponsors – who must be careful to take advice which covers all the options available – and enable them to make a truly informed decision.
In particular, Broadstone welcomes moves towards the establishment of a public sector consolidator (PSC) as one part of the solutions available, particularly for smaller schemes, alongside the introduction of commercial consolidators.
Nigel Jones, Head of Consulting & Actuarial at Broadstone, commented “We firmly believe there is room in the market, and demand from schemes, for a whole range of competing solutions.
“We welcome the developments in the risk settlement space as outlined in our report: innovation and increased capacity from insurers, the introduction of commercial consolidators and the potential launch of the PSC are all encouraging news for sponsors and trustees of DB schemes looking to secure benefits.
“It is inevitable, though, that given the continuing increase in demand, expanding existing solutions and adding new ones are vital to meet the needs of trustees and employers. The absolute size of UK defined benefit pension liability is enormous, and we are of the view that all solutions will find sufficient interest to thrive together in the market.
“The Pension Protection Fund (PPF), which is expected to run a PSC, already provides a blueprint for how a PSC can be delivered at scale. They have an established track record, with nearly 20 years’ experience of consolidating over 1,000 schemes, albeit with a different entry test. Their size allows for significant economies of scale and could help demonstrate what could be achieved if a visionary approach was employed.
“A PSC would be a welcome addition and part of the solutions set for a very large market. In our view it could be structured to leverage the experience and scale of the PPF, benefit the wider economy, result in more competitive pricing and ultimately lead to materially better member outcomes.”
