I will use a very old fashioned word and say I feel like a real “heel”, this morning. My mother says it a lot so I’m not inclined to google its origination.
Best left that I feel like a heel because I spoke about Adam Saron, Clara and superfunds in general without properly noting the work he , Clara and superfunds have and are doing to improve the prospects for many in DB schemes and in workplace DC schemes going forwards.
Adam, you are a true gent – and Clara – a great pension and a fine woman!
As Tom Mcphail says, the sooner private employers get DB liabilities off their books , the sooner they can get on with providing better workplace pensions ; in this case better=better funded!
Though there is a debate to be had about who gets any surplus (I suspect the shareholders of the superfunds will get most), I support Clara and I hope that Edi Truell’s “Superfund” will follow it shortly as an option for employers choosing not to invest into an insurance contract to buy their pension out – but use a superfund instead.
The traditional insurer bulk annuity buy out is very expensive because it delivers a much stronger covenant than the original scheme. In contrast, the superfund route appears to deliver a similar level of covenant to the workers’ current scheme.
Taken from Adrian’s post…..
“The traditional insurer bulk annuity buy out is very expensive because it delivers a much stronger covenant than the original scheme.”
I hope this will be the case if the British Steel Pension Scheme 2 (BSPS2) is bought out by an Insurance Company etc?
However, the Barnett Waddingham Finance Directors’ Guide to Pensions – Buyouts and buy-ins says that with a bulk annuity buyout, the terms of the insurance policy are required to precisely match the form of the members’ benefits under the scheme. It doesn’t say that it delivers a much stronger covenant than the original scheme?
This is the information from their website….https://www.barnett-waddingham.co.uk/finance-directors-guide/liability-management-risk-reduction/buy-outs-and-buy-ins/
“Buyouts and buy-Ins:”
“To remove the risk of further rising costs, sponsors are increasingly looking to insure some or all of their pension scheme obligations with a specialist insurance company. A premium is paid to the insurer to complete such a transaction. These types of transactions are known as bulk annuity policies and can be structured in two ways: through either a buyout or a buy-in.”
“With a buyout, the scheme’s liabilities are transferred to the insurer and the sponsor’s obligation to the members is extinguished. The terms of the insurance policy are required to precisely match the form of the members’ benefits under the scheme. Securing such a policy arrangement can be a long, protracted process. A buyout normally precedes a wind-up of a scheme and involves the entire scheme membership being covered by the policy. A buyout of only part of the membership is rare due to the fact that the scheme’s trustees could be seen to be favouring one group of members by providing them with increased security (i.e. those covered by the bulk annuity policy) over the remaining members.”
“Under a buy-in, the policy is held by the trustees and is effectively a scheme asset which pays the members’ benefits. In other words, the ultimate obligation to pay the members still remains with the scheme. A buy-in policy does not reduce the security of those members whose benefits are not insured by the policy, as income from the insurer can in theory be allocated across all the beneficiaries.”
Can I ask for your thoughts on this Adrian?