Uncertainties around Defined Benefit pension scheme liabilities can be a source of considerable anxiety for employers. Indeed, many employers prefer to spend any spare money reducing those liabilities, rather than adding extra funding to the scheme.
This makes sense because of the prudent approach trustees are expected to take when funding pension schemes. It means that fair offers can be made to members that give a saving compared to the value placed on the liabilities for funding.
Pensions are complicated and any liability management exercises need to be explained clearly to scheme members. If scheme benefits are reshaped or transferred out, members cannot be expected to make decisions without access to clear and comprehensive information.
We can advise on the range of options available to you when managing Defined Benefit scheme liabilities.
We’ll listen to your workforce and take full account of their perspectives, adding and discarding options accordingly, always balancing the needs of your members with your own objectives.
The amount of money needed to buy out a member with an insurer is higher than the amount held by schemes for their actuarial valuation, for example, and much higher than the transfer value. This can provide considerable scope for boosting transfer values to members, at a level that is still cheaper than buying-out.
Because there is a saving when people swap pension for a cash lump sum, insurers usually assume that members won’t take any cash at retirement. So if your members retire and take cash before buy-out, this reduces the cost.
There are numerous ways that pensions can be reshaped to bring down the cost of buying-out pensions. This might involve swapping pension increases for a higher pension, for example, or offering bridging pensions.
We’ll explain the likely impact of any offer and how it might improve your funding liabilities and accounting position, as well as reduce the cost of a potential buy-out.
We can also help you design suitable offers to the membership, and communicate them in ways that will help members understand their options and make informed decisions.
Ultimately, we’ll help you make sure that the right members take up the right options, and that those who shouldn’t take up those options don’t.
We’ll guide you through the complexities of liability management exercises. With our extensive experience, we can identify and explain all the risks involved in each option along with the likely savings. We’ll help you design a programme that works for you and meets your objectives.
Importantly, we are an ethical firm. By the end of a liability management exercise you’ll have achieved your objectives while treating your members fairly.
– Angela Treen, Finance Director