Being away from the City , I get a perspective on the mood of pension schemes and if pension schemes are at last aware that they and the members of their schemes are being ripped off by buy-out – then not before time. We have been sponsoring insurance companies and their foreign purchasers for too long. Right now it is large schemes who are waking up – in future smaller schemes may wake up to consolidation through superfunds and swaps of covenant.
Of course the “rid of it” brigade will still urge anyone who’ll listen that they haven’t got the covenant for it but if the Government finally stands up to the ABI lobby and allow some of these pension funds that David Walmsley says are knocking, in to the house, then we may see progress.
My antipathy to insurers is not that they are evil, I worked for them in the middle years of my career, my hatred of buy-in and buy-out is that it destroys value to this country’s economy in many different ways. We need the money in pension schemes to be invested in growth, we need the growth of the British economy to fire jobs which in turn pay pensions and we can use not just today’s surplus, but tomorrow’s profits to pay for proper pensions for the generations coming behind us.
The alternative is the dead hand of DC and of wealth management, neither of which offer people an income that in real terms pays lifetime deferred pay.
I hope that after a quarter of a century of “risk reduction” , we will remember “growth” as the proper function of a funded pension,
Here is how Brightwell’s press release released yesterday talks of the subject
Run-on has overtaken buy-out as the dominant endgame for the UK’s largest DB schemes, according to research by Brightwell and mallowstreet.
The Endgame & Surplus Report 2026 is based on a survey of 23 UK corporate DB schemes with assets over £1bn. Respondents represent a combined £414bn in assets.
The report showed that seven in ten (70 per cent) schemes now target run-on, nearly double the 38 per cent recorded just twelve months ago, while buy-out has collapsed to just 4 per cent.
This year’s responses showed that 60 per cent cite a change in sponsor engagement or view as the most likely reason to change endgame, while 53 per cent point to a change in covenant strength. A third also cite a change in funding position. Among schemes not currently targeting run-on, 57 per cent say they could be persuaded by regulatory change that makes run-on more attractive.
Of course Brightwell, being the service company to the BT pension scheme, believes it speaks for large schemes through these reports. But they are only a partner of mallowstreet, this report should be more than an advert for Btighhtwell.
The report suggests that the future is not in more governance but in investment. The arguments that the report makes are those that this blog has been making through William McGrath, Ashok Gupta and through those pension scheme managers and trustees who have found ways to carry on. I reprint from the report it’s recommendations. It is a recipe for some hope, though I think we could say this a little simpler- and less an advertisement for Brightwell. We need to translate TAS300 into a language that any stakeholder of pensions can understand, a language that offers in numbers and words, the opportunities that schemes have.
Does it really have to be this hard?
Exactly what I have been arguing for years.
It is the smaller companies and their employees in particular who can gain from run-on of DB schemes. The localising of the pension scheme assets to the company and its employees (past and hopefully present and future) provides a pool of resources that can be used to support that company and its place in the wider economy by reducing future employment costs or possibly providing capital through a refund of surplus for future growth.
If the company has no ambition to run on the pension scheme, is it not better for the pension scheme funded to the same level as for buy-out to be gifted to the pension scheme members, as Stagecoach has effectively done, allowing the Scheme to run on a shared ambition basis? In that way the company avoids not only having to fund the profits of the insurance company (whatever its ownership always remote from the company and the pension scheme members) but also avoid the excessive advisory costs associated with buy-out (I have seen an estimate that even for the smallest scheme these are likely to be £250,000 or approximately 10 years annual administration costs in run on).
I will not be popular with the ABI or the insurance broker owned advisory industry.
Good
“The report showed that seven in ten (70 per cent) schemes now target run-on, nearly double the 38 per cent recorded just twelve months ago, while buy-out has collapsed to just 4 per cent.”
It’s financially illiterate bordering on negligence to give away a fully funded scheme, for convenience. And at a macro level, its economic suicide – akin to killing the healthy patient with (faux) kindness.
It is good that the efforts of commentaors to stress the benefits of “Run On” v “Buy In” or “Buy Out” appears to be taking hold over the past year. However, I would point out using %’ages on a sample of 23 Schemes is not great.
“…….while buy-out has collapsed to just 4 per cent” actually means only 1 of the 23 schemes sueveyed is currently considering “Buy Out”, which means the other 22 are actually running on (for now at least)!
However the most impresive stat is “This year’s responses showed that 60 per cent cite a change in sponsor engagement or view as the most likely reason to change endgame,…..”. This means that 14 Schemes with over £1bn in assets had the Sponsor reassess its “end game” stance. That is a major change in attitude.
However the real change needs to be in the less than £1bn Schmes, as Pension Oldie points out. Perhaps TPR might like to do reseach on the many smaller schemes that currently run on, as to future intentions, in particular should commercial Superfunds and CDC schemes take off.
Mor work to be done :-).
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