Revealed;- the Giant Jenga Challenge to buyouts

henry tapper

2 years ago

An Obscure, Recent, Regulatory Update can Improve Pension Provision and Boost the City

A regulatory update can bring about major improvements in 
pension provision says C-Suite's William McGrath.

From April 2024, under Technical Actuarial Standard 300 version 2, actuaries must compare bulk transfer of pension liabilities to life insurers with sponsoring employers continuing in place and trustees running schemes on long term. After years of high contributions and derisking of investments surpluses have arisen. That means the numbers show “run on” is far better for all members and wider stakeholders.

Low and falling probabilities of loss compare with high and rising probabilities of more.

Trustees have to reconsider what is in members’ best interests and go for a new deal with sponsors involving discretionary payments. Sponsors with their statutory and ESG commitments should agree to sharing surpluses with past and present employees. Assets should be managed under stable long-term deals. Cash should be recycled from old DB tiers into modern DC funds with more, higher productive asset allocations. That creates more active Capital Markets. Cash is available to pay out which is currently appearing in high life insurer returns.

Technical Actuarial Standard 300 version 2, from the Financial Reporting Council, aligns with HM Treasury’s support for run on strategies and push for higher productive asset allocations. More money kept in DB schemes and recycled into DC is good news for UK asset managers and the City.

Scheme members do not need to be pension experts – to get this.

Members of DB schemes should ask the Board of trustees and corporates whether they have complied with regulations and thought about their fiduciary duties. Put questions to which the answer can be yes and positive outcomes follow.

William McGrath, Founder C-Suite Pension Strategies says

“The ‘endgame’ mindset casts a powerful spell over the pension sector. TAS300 version 2 is the antidote requiring a straight bulk transfer / run on comparison. The maths and the governance to implement ‘best interest’ conclusions change the story. Now Run On 4 Good; exercise discretion; reconnect DB past with DC present in a positive framework for all stakeholders.”

The Positive Impact of Technical Actuarial Standard 300 version 2

Bulk Transfer v Run On: The Risk-Benefit Analyses

In April 2024 the updated Technical Actuarial Standard 300 came into force. No great fanfare – but Section 5 can have a major, positive impact. The mathematics reframes ‘best interests’ of members and resets the strategy for the scheme.

A numerical risk-benefit assessment is needed to comply with TAS300. The loss to members of falling into the PPF is modest and reducing, given the bases / amounts that the excellent, well-funded scheme covers. PPF has had few new entries for some time. The probability of the sponsor failure causing a scheme to enter it in the years ahead is low in a well- regulated environment.

Meanwhile, the probability of discretionary upside being available is rising because of surpluses and changed public policy towards accessing them.

Here is the rule as it is displayed to actuaries (highlights from William McGrath_

TAS300 Rule 5:

Trustees addressing members’ best interests and their fiduciary duties should go for a new deal with the sponsor to work in all stakeholders’ interests.

Thanks to

William McGrath, Chief Executive of C-Suite Pension Strategies