There is a lot to be said for asking your customers what they want and Pension Insurance Corporation (PIC) make it clear that they have good reason to feel happy that people getting paid annuities by them are happy with security and not happy with any political threat to their income.
PIC need to be careful that we know that the people they (an insurer) talk to, are getting an annuity, not a pension, by an insurer not a pension scheme. The insurer in question is commercial and subject to different rules deriving from the PRA not TPR.
I am not sure that the middle question was posed fairly. Pension schemes which did a deal with PIC paid away a good proportion of what might be considered “surplus” to the insurer as a premium. Is this not “surplus extraction” with PIC being the beneficiary?
This is a little unfair on the insurer but to those polled – does that matter? PIC cannot invest money received in the way that pension schemes can so necessarily must charge more than funding rules require for schemes to soldier on and the main beneficiary of this is the sponsor who hands over the impact of liabilities to a third party (and ultimately the cost of running the scheme). Here is how Tracy Blackwell, PIC CEO puts it
The debate about surplus release within defined benefit pension schemes has been led by economists and technical experts, but so far the people with the potential to lose the most have not had their voices heard – the members themselves. So we have spoken to 1,000 of them to see what they think, and are pleased to publish the poll findings this morning – https://lnkd.in/ekkbbUgW
She carries on
We think the views of DB members, many of them elderly, many of them classified as vulnerable, should be properly considered in any decision about a policy that the Government’s own document says would reduce the security of their pensions.
Like all the other participants in this debate, PIC has an interest in the outcome. We take on DB schemes and now pay the pensions of 400,000 people – and have paid more than £16 billion to our pensioners so far. Our view is that it is fundamentally right that members’ benefits are fully secured before the sponsoring employer gets any cash back – a position which should align everyone’s interests.
Now here I come to protest from pensioners who feel that they are being deprived of pension rights that they were promised would be met if the money was there and would not be paid if an insurer paid just on the bare minimum promise needed to keep the scheme compliant with its trust deed and regulations
The BP linked in group is an excellent example with members keen BP does not pass the scheme to an insurer to rid itself of discretionary but promised benefits to pensioners.
There are many other pension schemes which like BP can do more for members than insurers can and I am sure that if the poll floated by PIC to its members , were floated to BP members , they would get the same answers at a generic level but a very different answer if members were asked if they’d like their benefits bought out by an insurance company (PIC is an insurance company). Members are aware that having their benefits bought out by a Bulk Annuity Purchase is not necessarily in their interest.
There are a group of accountants, actuaries and senior executives of pension sponsors who are increasingly worried that the decisions taken about transferring pension promises to annuities (offered by insurers) is being done without proper consultation and worse without proper analysis of the benefits to members. At the front of the charge is C-Suite, led by former Aga CEO William McGrath
C-Suite highlights what it considers the technical issue which is explored by BP members in less obstruse language. It is organising resistance to the end of DB plans through bulk purchase annuities taking over. C-Suite focus on TAS300, an obscure actuarial requirement to look at the financial advantages of buy-out v the alternative – carrying on.
Risk-Benefit Analyses of financial best interests of beneficiaries and sponsors are a clear requirement on DB schemes and their advisors. N.B. TAS300V2.1
This group is called the “credible alternatives group” and its aim is to find better ideas than the lock-down of schemes into annuities.
Government can underpin DB scheme Risk-Benefit Analyses.
Where a scheme holds a minimum %’s of assets in designated UK productive and UK gilt categories Government incentives are provided:
– Improved (but not total) PPF cover should the sponsor fail. End of “haircuts”
– Surpluses of up to an annual maximum % of assets can be used from DB schemes (funded to sustainable low dependency) to pay DC contributions, improved pension payments and fund scheme running costs and UK capex.TPR to raise accepted level of returns for mature schemes.
To use simpler language, these people feel that it is in the interests of all – Government through to members – that proper analysis of alternatives be considered so that Tracy Blackwell’s finding are followed without the need to annuitize.
As before, I would like a more balanced debate which asks questions of all rather than those who have been bought out and are being asked to vote against LESS without being offered the possibility of MORE.
We can realistically look to the banking crashes and not trust the durability of the financial services industries. We can look at the Post Office Scandal, contaminated blood etc to see government denying for as long as it can and procrastinating and hoping the sufferers die. We can equally look at government accounting policies and see that they do not account for maintenance backlogs, which we know are massive.
We can look at adult social care to see politiciams have real too difficult trays.
We can look at the corporate pension scheme failures and appreciate it only takes 1 generation of management to completely queer the pirch.
We can then look at dear Donald Dementia amd realise that that an investment wall has to be well diversified and have a big surplus to cover the eventualities.
As pensioners we do not want to be caught in any of the aboveand it would be good if our pensions were good enough to cover away our care needs.
There is however perhaps one avenue that the pensions and govrrnment have not considered. We need to invest in a big way in a new 21st century power and collective economy. The pension funds could lend to utilities under a reverse of the student loan scheme. if the loans had a flexible repayment system with a fixed term then if the borrower failed to fully repay at a schedule rate then government would be the guarantor (for Jo Public the beneficiary) to pay the difference.
A good set of revenue adjusted earnings and finance rates would create an opportunity to encourage some big sensible investments from the pension sector. However could this mess up the long gilt market which is dominated by pension schemes?
LOL if it wasn’t so sad. Its a scandalous attempt at the worst type of vox-pop by PIC.
Perhaps, to balance, PIC should have asked the DB members are they happy for their fund surpluses built-up over 30 years to be siphoned off as super-profit to insurers, leaving the residue of the fund to be invested in low return low productivity low growth investments and all part of a system-wide malaise that is literally draining the lifeblood out of the UK economy. And if that continues do the members think the likelihood of getting their pensions in full will increase or decrease under a failing economy? Oh, and by the way, they’ve very little chance of getting any meaningful protection against high inflation once the Trustees hand over the scheme
What this attempted PR spin really SHOUTS OUT is that the game is just about up for this money making whiz. And all it took was the simple illumination of the facts and to take one step back from the vested interests.
Sorry, but insurers were not created or structured to be the dominant stewards of our economy. On a system wide basis, there is no economy that can survive the transfer of £50bn per annum out of the potentially productive economy into the (by definition) low risk low return insurer eco-system. Scale that over 10 years and we’re talking about more that £half-a-trillion of the UK economic firepower, basically firing blanks.
The £650bn losses from the LDI experiment was truly tragic enough. We do not need round 2, and we need to stop scoring these own goals, now. The rest of the World is playing a different game, and they are killing us.
“Our view is that it is fundamentally right that members’ benefits are fully secured before the sponsoring employer gets any cash back” I think the implication here is that only an insurer can “fully secure”. So, accepting this edit, the statement now reads “Our view is that it is fundamentally right that members’ benefits are fully INSURED before the sponsoring employer gets any cash back.” Sounds a little self-serving, at best.
But worse, in structured finance terms (of which an insurance contract is a good example), “security” has a specific, precise meaning where the liability (policy) is collateralised in favour of the creditor/policyholder. There is one thing that an annuity policyholder is not: collateralised by the assets. So in actual fact, moving from a position where the member “owned” the assets (collateralised) in the DB scheme to an uncollateralised insurance policy, the member/policyholder actually gives security away! Insurance contracts do not increase security, they actually reduce it.
How insurers and their advocates have been allowed to get away with the misappropriation of the the term “security” in this context is a mystery. So many chairs of trustees have announced they have “secured” their members benefits when they have done precisely the opposite. Perhaps they do not understand finance….
The insurers fully understand this: why is funded reinsurance (where the insurers are the “policyholder”) fully collateralised…..even if not quite collateralised appropriately for the PRA’s approval.
Agreed. If I was a young lawyer, I’d be preparing for the raft of truly enormous class actions coming. Having more than the hitherto cursory ( or self justifying ) TAS300 analysis will become a critical first line of defense for the IPT, the Trustees and the advising (scheme? ) actuary….