Life as a pension scheme sponsor or trustees can be open to volatility driven by market movements, life expectancy changes and changing regulations. Pension liabilities can be a drag on the value and prospects of many businesses, particularly with increasing scrutiny from the Pensions Regulator, and Trustees will want to ensure full security for their pension scheme members’ pensions. But when is the right time to securely transfer risk out of your scheme and what’s the best way to do it?
We’ve worked with many schemes to identify the right way to proceed for their specific needs and circumstances – every case is different. With our expertise and experience, and underpinned by our award-winning technology, you can significantly reduce, and ultimately remove your pension risk.
Pensions risk transfer insights
Our latest insights for pension trustees and scheme sponsors.
When should you think about pension risk transfer?
- Do you have a target timescale for reaching ‘full funding’ in your defined benefit scheme?
- Do you know how you will manage investment, inflation and longevity risk up to that point?
- Are you ready to act when market pricing creates opportunities for a pension risk transaction?
Some trustees believe they must wait for their schemes to achieve full funding before a risk transfer project will be viable. Not necessarily: we’ll work with you during the journey, identifying opportunities created by changes in risk transaction pricing, and ensuring you can act quickly when the moment arises.
“The demand for insurance and consolidation solutions is growing, with each year seeing a new record level of transactions completed. In this demand-heavy environment a new approach is needed - it is the schemes that understand market dynamics, engage with market providers early, and who are best prepared for a transaction, who will be able to ensure the right transaction at the right time.”
Five best practices for successful risk transactions
- 1. Decide on an end-game strategy
- 2. Get current and accurate pricing data
- 3. Get “trade ready”
- 4. Identify innovations that could reduce cost
- 5. Increase deal feasibility with PwC Insure
1. Decide on an end-game strategy
Insurance and consolidation solutions are only one part of a potential end-game strategy. We help our clients consider a wide range of solutions including analysis of what type of transaction is appropriate at which time, and how to get there if you are not ready yet.
2. Get current and accurate pricing data
Scheme trustees and sponsors must be able to make these significant decisions on the basis of accurate information. Using market-leading technology through PwC Insure we can secure initial prices from insurers and other market providers for your scheme within a week, helping you to identify opportunities and act on them. In today’s busy market this information advantage is critical in timing the market approach to find the right provider with the right price for your transaction.
3. Get “trade ready”
We can help you get “trade ready”, with your data and legal documents in a good state and with a clear idea of your objectives and price targets for a transaction. This will put you at the front of the queue when providers in an increasingly busy market are prioritising their deals and importantly avoid last-minute surprises on cost and timing of the final transaction.
4. Identify innovations that could reduce cost
The pension risk transfer market is still evolving, with new innovations generating potential cost savings for pension schemes. We have a strong track record of helping pension schemes to access new, cost-efficient solutions across buy-ins, buy-outs and longevity swaps.
View more on ASDA Group Pension Scheme
5. Increase deal feasibility with PwC Insure
PwC Insure is our market-leading technology which enables insurers to assess and deliver initial pricing within days. This provides you with unique access to reliable and early price visibility so you can design and time your deal with confidence.
Choose the right advisor
PwC have a team of dedicated and experienced pension risk transfer specialists having completed £20bn worth of transactions for over 50 clients. We work with our clients to build an agile journey plan that moves with the company and pension scheme. We create solutions including partial and full buy-outs, novation of existing longevity swaps, ‘PPF+’ buyout and member options.
We create innovative capital backed solutions to help our clients reach their end-goals and have regular discussions with the providers of third party capital to best tailor bespoke solutions in this field for competitive commercial terms.
Clients we have advised for in recent years include the BA pension schemes, ASDA Group pension scheme, IMI, Sappi and ITV pension scheme.
Buy-ins and buy-outs
Pension risk transfer to the insurance market, typically known as a bulk insurance transaction, is a well established end-game for UK defined benefit (DB) pension schemes and often considered the gold standard for de-risking pension schemes and securing the member benefits.
Under a bulk insurance transaction a pension scheme invests in an insurance policy to secure the member benefits and transfer associated risk, both financial and life expectancy, to the insurer. There are a number of market participants in the UK who can provide pension risk transfer solutions.
In addition to securing member benefits, insuring a pension scheme usually allows the trustees to discharge their fiduciary responsibility while removing pension related risk from the sponsoring company’s books.
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Underwritten (Capital Backed) Solutions
Underwritten solutions are where a third party provider underwrites a defined benefit (DB) pension scheme’s journey plan to its target end game. Also known as capital-backed solutions, these are typically provided by an asset manager.
Underwritten solutions increase the likelihood of a pension scheme reaching full funding in a set timeframe by underwriting a level of investment performance to increase efficiency and security of members’ benefits.
Trustees and sponsors will want to understand the risks associated with these solutions such as counterparty risk and how they compare with other solutions in the market.
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Consolidators
Superfund Consolidators (the “Superfunds”) are a new innovation in the UK pension industry. Transferring a defined benefit (DB) pension scheme to a Superfund can improve the security of members’ benefits by replacing a weak employer covenant with a capital buffer.
Superfunds could allow the companies who sponsor DB pension schemes to transfer pension obligations to Superfunds, removing any future obligation to fund pension liabilities. To transfer to a Superfund, sponsoring companies need to obtain clearance from the Pensions Regulator in the UK and demonstrate that the transaction meets the Regulator’s ‘Gateway Principles’.
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Pensions Director, Bulk Annuities Lead, PwC United Kingdom
Tel: +44 (0)7483 117060
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