I do apologise to my readers for annoying them. They had been asked to engage with Pension Insurance Corporation’s survey of 1,000 of their members who it seems, enjoy PIC’s willingness to keep them paid
However, I had misread my reader’s reaction to PIC’s poll. Here is jnamdoc kicking off.
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.
But after this came Paul Brine – at least I know who he is, but I bet PIC didn’t.
“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….
The US ministry of truth published its formula for tariff setting.
Explained here
https://youtube.com/shorts/KmVBfI4_6a4?si=9SHMXmRUZW_gzS5K
The phrase “risk transfer” is widely used by the insurance industry when trying to sell its products. In fact a bulk annuity transfer is not referring to the risk to the individual Members’ pensions but to the risk to the employer of additional funding being required.
I wonder how many employers realise that they remain on residual risk for the pension promise made at the time of pensionable employment even after a buy-out and it is the strength of the contract the trustees of the pension scheme have negotiated with the insurance company that indemnifies them against that residual risk. Further the full premium paid to insure the funding risk has to be reflected in the company’s profit and loss account in the year (just as with any other insurance premium) irrespective of whether it is the pension scheme’s assets that have been used to pay the premium or by an additional cash contribution by the company. (IAS19 paras. 48 & 49).
I agree that PIC’s comments are self-serving.
I disagree with the statement that the assets are owned by the members – they are owned by the trustees and backed by the sponsor who can go bust. This is why the PPF exists and, ironically, why insurance has previously existed (to become the replacement sponsor following a buy-out of a scheme without a sponsoring employer(s)). As such, I disagree with the statement that pensions scheme assets are collateralised.
From my own bitter experience, while companies are legally obliged to fund their pension schemes, they don’t always do it and, when they don’t, it is for the trustees to take [extraordinarily expensive] legal action to enforce the corporate commitment.
It remains the case that for many schemes, insurance is the right home for them. However, that is not the case for many others. The covenant analysis (rather than actuarial analysis) is the key here. What provides the stronger long-term covenant – the sponsoring employer(s) or the insurance, or both?
In my view, TPR will always standby a trustee board that insures (assuming a reasonable process has been followed) but it then goes wrong than a trustee board that doesn’t insure and it subsequently goes wrong.
Of course, TPR will never praise a trustee board that doesn’t insure but delivers a better outcome for members and potentially the corporate too. That’s not what regulators do.
The challenge for all parties is that the culture we live in wants both diversity and conformity.
The process must be challenged. And the advisory firms must innovate.