I’m a words man. William McGrath is a numbers man, I think we are both humanists, we value human happiness over corporate profits. So William has responded to my well read blog this week about Baker Hughes’s inhumanity with this powerful stuff. It’s number’s not words but that will drive the points on to parts words cannot reach – the brains if not the hearts of certain actuaries who think de-risking an end in itself. Thanks William for what follows.
The Lessons of Baker Hughes
Available information:
- Baker Hughes has a market capitalisation of $38 billion and an ‘A’ debt rating. Not a covenant risk.
- Baker Hughes is reducing current DC pension accrual rates.
- Baker Hughes has three UK pension schemes with an aggregate value approaching £830m and an accounts surplus (see summary below).
- Deals have been reached to transfer the schemes to Pension Insurance Corporation (PIC) for around £900 million. Press releases note deals produced in short timetables and the good work of the long list of advisors. No “Background To and Reason For” explanation.
- PIC has become immediately profitable and is selling out to Athora (Apollo) for £5.7 billion.
Questions arising:
- Technical Actuarial Standard 300 Version 2 requires bulk transfer v run-on comparisons by actuaries with workings made available to trustees and sponsor. What did it show?
- Will members receive discretionary payments benefits on a buy-in or subsequent buyout? The trustees are not powerless here. Their powers on a wind up means the company does not book the accounts surplus. What did the trustees ask for?
- Is a payment being made to achieve the deal following the contribution of £12 million in 2024? With a “run-on” plan could such a payment have been avoided? Would run-on provide cash to avoid cuts to current pension provision?
Actuarial work and pension transactions receive virtually no scrutiny. That is why there are such apparently sub-optimal deals. Members and employees of such schemes should get stuck in and ask questions. The impact of knowing somebody is watching will be positive for all stakeholders as light is shone in on actuarial magic.
A Proposal
Trustees undertaking pension risk transfer transactions should include a “Background To and Reasons For” explanation in press releases and member communications. This would align with what is expected of corporate transactions. Sponsor accounts should include summary numbers and an explanation.
IFoA, TPR, FCA and PRA can formalise a requirement. Members should put all involved on notice now that they expect it.
Most Pension Risk Transfers do not make economic sense for sponsors or trustees. Still they happen. Government wants alternatives. It’s time for the pension industry to come under scrutiny.
Time for scheme members and current employees to be activists.
The numbers
