With nearly all (95%) of those scheme sponsors intending to buy-out projecting they’ll do so within 10 years, the leading pensions and financial services consultancy says that companies should keep their options open for new value creation opportunities. These may come from new market solutions or the recent Mansion House reforms. However, most companies are unclear about how those solutions or government policy may impact the detail of their pension strategy.
Commenting on the landscape for DB scheme sponsors, Leonard Bowman, Partner & Head of Corporate DB Endgame Strategy, Hymans Robertson, said: “Companies never seem to get a break from new pension regulation, evolving pension solutions or volatile financial markets, but it really does feel that we are in an unprecedented period of change in the pensions world.
“Rising yields and improvements in funding levels are increasing the focus on endgame strategies and it is clear there is a wide spectrum of strategies evolving. Respondents were fairly split between saying their plans will be a full buy-out of the scheme (48%) or to run the scheme on (44%).
“Whilst buy-out will be the right solution for many sponsors, there are concerns around the process. More than two in five say they are most concerned about a lack of insurer capacity or interest in their scheme (45%), accounting implications (45%) and the cost (41%).
“Although there is uncertainty as to what the pension landscape will look like over the next few years, there is also opportunity in relation to new solutions coming to market and evolving government policy incentivising run-off strategies. Companies intending to pursue an irreversible insurance buy-out transaction in the short- to medium-term may wish to consider keeping their options open, given that the Mansion House reforms could open up new value creation opportunities, such as lowering the funding bar for extracting surplus or reducing the 35% tax charge on surplus refunds.
“This is also a potential win-win situation for companies and members, whether by share of surplus solutions meaning augmentations to member benefits or sponsors re-visiting their future pension provision designs. Much will depend on future government policy.
“Companies should be taking a step back and re-evaluating their endgame strategies, to ensure it aligns with the company’s broader objectives and beliefs and also reflects the rapidly changing pension landscape.”
The report on the survey findings can be read here.
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