Pension schemes are missing opportunities to reduce the risk in their pension schemes as they don’t have access to accurate information quickly enough.
PwC surveyed 150 UK defined benefit pension schemes across the industry and found that despite a strong appetite to complete buy-ins or buy-outs, very few have the sufficient information they need to track market opportunities to execute these deals in a smart and timely way.
Only 11% of those surveyed have access to real-time asset and liability updates making it far more difficult and expensive to monitor pricing triggers. Attractive pricing opportunities can be short-lived, so any delays in information can make the difference between a deal going through or not, and whether the price the deal is executed on is commercially sound. In addition, very few schemes have access to accurate enough liability valuations which means that even their initial strategic decision-making about the viability of a buy-in or buy-out may be misinformed.
Raj Mody, head of pensions at PwC, said:
“The size and volatile nature of funding defined benefit pension schemes continues to impair UK business. The uncertainty over just how much companies will need to pour into their pension schemes to manage their deficits means many are looking at opportunities to remove the risk from their balance sheets.
“There is strong appetite in the market for risk transactions, such as buy-ins, buy-outs and longevity hedging. We know pension schemes representing over £100bn of liabilities are currently considering some form of third-party de-risking transaction, but whether this interest converts to deals will depend on a number of factors. One of the barriers will be schemes not having access to accurate information when they need it, meaning they can’t get the most effective terms for the deal, or in some cases deals not going ahead.
“Schemes looking to transact need to be able to monitor their position accurately enough on a regular and rapid basis. Buyout tracking presents a particular challenge, as insurer pricing captures nuances in market movements that lie beyond most daily funding tools. This means it can take several weeks or months for useful information to become available, by which time opportunities pass. This no longer needs to be the case as technology developments for companies and trustees means they can now have direct access to the information they need, enabling them to execute a risk reduction deal at an attractive time and price.
“In our experience of various buy-ins and buy-outs, the “off-the-shelf” Scheme Actuary’s estimate of buy-out can often be overstated, containing margins for prudence. For schemes where de-risking is on the agenda, it pays to be able to track more accurate valuations which reflect currently available commercial pricing. This approach is more likely to lead to better informed decisions and quicker deal execution.”
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