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“I found the trustee training really beneficial, highly recommended. I am not a trustee, I represent the employer and I think it will be valuable for me in future, having a better understanding of the trustees' perspective.”
Many defined benefit (DB) pension schemes that, at their triennial valuation three years ago, would have considered buy out as a very distant hope on the horizon, may now be in a position to do a buy-out, or at least ready to have a serious conversation with the sponsor about how this can be achieved over a very realistic, relatively short timescale.
It’s no surprise then the volume of pension scheme buy-ins and buy-outs is predicted to soar this year. According to Lane Clark and Peacock (LCP), the second half of 2021 saw £20bn buy-ins/outs being completed, and figures from Hymans Robertson predict this year will be even higher. They expect total volumes for 2022 to be around 25% higher than 2021, at around £35bn.
Several factors are driving this activity, including improved pension scheme funding (schemes that aren’t fully hedged have seen the greatest improvement in funding would this year), the rising demand for pension schemes to insure their risks, competitive insurer pricing and new risk transfer options such as superfunds that can offer a real alternative for some DB schemes.
This growth is set to continue with around £50bn a year of buy ins and buy outs on average anticipated over the next 10 years. By the end of 2031, it’s expected £1trn of pension scheme liabilities will have been insured, covering five million members.
While this increased activity brings fresh business opportunities to insurance providers, advisers and administrative teams who can support end game planning and implementation, it will cause capacity issues in the market. Already some insurance providers and buy out teams are struggling with resourcing issues and, unless they can address this, they will either have to decline to quote or reflect it in their pricing.
An increase in buy in/out activity also means more project resources will be needed within the administration/actuarial firms to undertake data cleansing and (where not already done) GMP equalisation. Again, in an industry already struggling to recruit in some areas this adds further pressure.
Pension trustees will play a key part in ensuring a scheme successfully reaches its end goal. It is crucial they prepare well and plan for every aspect of the journey. They’ll need to ensure scheme data is in good order, get on with GMP equalisation and agree a project plan with the pension scheme sponsor, detailing everything they want to achieve with clear deliverables and timescales. I wouldn’t fancy doing all this if it wasn’t my day job!
As a professional trustee, I understand the complexity and pressures of end game strategy, planning and implementation. Navigating through all the different end game options can be confusing. An important part of my role is helping co-trustees on a board understand and clarify the best option for the pension scheme and smoothing the challenges ahead.
Understanding the insurance market is just one of those challenges and it’s magnified for smaller pension schemes. Finding insurers who will quote is often harder. Knowing the work that needs to be done to best position a scheme to achieve competitive quotes is vital. Without a professional trustee, a trustee board may become overly reliant on advisers and find costs hard to control and struggle to make decisions. This will only delay reaching your end goal of achieving security and certainty for both members and your scheme sponsor.
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