Nick Lyons

Edi Truell

It is clear to me that this Government is intent on restoring a system of pensions that provides its citizens with proper later life security.

I see no indication that the new Lab our Government is walking away from its obligation to pay pensions to those it employs in the public sector, nor do I see it rolling back the expectations of an improving state pension – upgraded each year by the triple lock. I see some frustration that where the public sector pensions are funded, they are being managed efficiently, the public demands VFM for their council tax payments, but I see no move to walk away from the LGPS either.

But in the private sector, the Government has a different set of problems. It does not want to intervene in the operation of the pension system unless it sees systemic problems ahead. But the failure of the BOE and PRA to foresee the peril within leveraged LDI remains an open wound. The next financial crisis might  well be germinating in pensions but it may not be nurtured for long

Let’s be clear about the kind of reinsurers who operate offshore (primarily in Bermuda). Here is the legacy that 777 left on Everton

BBC Sport understands the major stumbling block was a situation involving previous prospective buyer 777 Partners, whose proposed takeover plan had been backed by funding from financial insurers A-Cap.

The 777 group loaned Everton £200m during their takeover attempt and the issue was not paying that off, but the legal action that 777 faces in the US.

In May, 777 and the firm’s co-owner Josh Wander were accused of a “fraudulent scheme” by a lender in a civil court filing in New York.

Friedkin Group did not know how long this would last for, was unclear about who was in charge of the loan, and was wary of any potential risk, so decided to walk away rather than wait for the issues to be resolved.

The idea that your retirement income could be in the hands of 777, an organisation that nearly destroyed Everton Football club, is not one that can entertained by any Government , let alone one that has put pensions at the centre of its financial agenda.

Ian Smith reports that

In a letter to life insurance chief executives on Friday, the regulator said firms had not done enough to improve their risk management of so-called funded reinsurance deals. These are where UK life insurers pass a chunk of their pension liabilities, and the assets backing them, to overseas reinsurers, in jurisdictions such as Bermuda.

Gareth Truran, executive director for insurance supervision at the BoE’s Prudential Regulation Authority, told insurers it was concerned that the growth in funded reinsurance transactions “could, if not properly controlled, lead to a rapid build-up of risks in the sector”.

He added that UK insurers were using funded reinsurance “in a way that is not consistent with prudent risk management”. The regulator said it would consider action including “explicit regulatory restrictions on the amount and structure of [funded reinsurance], or measures to address any underestimation of risk, or regulatory arbitrage, inherent in these transactions”

In the light of this, it is not surprising that the Government is promoting the virtue of pension schemes running on, under their own steam, with co-sponsorship from capital rich private equity firms and through consolidation into superfunds.

But the capacity of the superfunds is limited and banks and private equity houses do not have the appetite for longevity risk that exists with insurers (who insure people against dying too soon) .

There seems a case for insurers , reinsurers , pension schemes and capital backers working better together (playing nicely). The acute problem for insurers is capital, their sweet spot is providing guaranteed annuities to the over 75s. The capital backers have few capital constraints but want rid of open ended longevity risk

I hope that we will start seeing more co-operation between insurers and superfunds, buy-out and buy-in deals which compliment the merits of insurance and investment to the benefit of pensions and the former sponsors of pension schemes.

This is not so fanciful as it might seem. I am already seeing it begin to happen. The trick is to find a legislative and regulatory solution that encourages sophisticated but simple solutions to complex and difficult problems. The signs of this happening are good. I am encouraged.