Trustees and sponsors are keen to find the optimal solution for the long-term future of their schemes, balancing time and cost, risk and opportunity. In this report, we summarise the expanded range of options now open to them.
Following sustained bond yield increases, a significant portion of defined benefit (DB) pension schemes are now fully funded. This major shift has placed end-game planning further into the spotlight.
The new Funding Code from the Regulator, with its focus on planning and documenting a more detailed long-term funding and investment strategy, only adds to this impetus.
We therefore examine here the various approaches available from the traditional to the newer, more innovative solutions on offer.
Commenting on the report, Broadstone head of consulting and actuarial, Nigel Jones, said: “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 defined benefit (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 DB pension liability is enormous, and we are of the view that all solutions will find sufficient interest to thrive together in the market.”
However, Jones said that 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,” he added.
“Their size allows for significant economies of scale and could help demonstrate what could be achieved if a visionary approach was employed.”
Jones stated that 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,” he concluded.
Read our full report here.
