Pension schemes have been teeing up bonuses for insurance company executives for so long you’d think they were owed them.
Standard Life and The ABI got their report from the “independent” Pension Policy Institute.
This blog agrees that surpluses are ephemeral – a word introduced into the argument by Con Keating and Iain Clacher. I refer to an appropriate wordbook.
The ABI, Standard Life and PPI would like us to know that the money that sits as surplus is not only ephemeral but spoken for.
If you are keen to understand the risks of shaving off a surplus from the side of the pension’s tender face, then here is a link to the report. There will be blood (where it matters)
Blood
All we need is another financial crisis , another pandemic or a war of global proportions and the surplus could balloon as liabilities are discounted to nothing. Schemes have no one to pay as everyone is dead. Everyone except those who were insurerd who had a nuclear shelter to ride out the crisis. The scheme is intact
More blood
All we need is another financial crisis , another pandemic or a wealth of global proportions and we have another bout of austerity with gilts nailed to the floor to keep debt down for Government. Liabilities balloon and every scheme that once had a surplus now has a deficit. Everybody is dead because no-one was insured and made it to the nuclear shelter.
Surplus is a political football
Trustees need to know that they could be plucking tender morsels from the insurer’s mouth. So long as insurers funded at 120% of what’s needed they can pay, not a surplus, but a big premium to the insurers which keeps the wheels oiled .
Trustees need to work out who to pay this surplus to and how to recover the money if the worst comes to the worst (in this ephemeral world).
There is a lot of mileage in “run on” and plenty of potential pensioners who have never benefited from the fund that pays defined benefits. It is good to think of the surplus money transferred to a CDC scheme possibly in specie. What better way to reward insurance companies for all that they have done for pensioners over the years.