Feature


It is rare for schemes these days to transfer in specie. You might want to mirror what the insurer will be doing, but there is no guarantee that the insurer


will take your assets in specie. Alan Pickering, BESTrustees


sions, has dropped from 34% to 22% in three years, according to Mercer’s latest de-risking survey. One explanation for slow- ing growth is the emergence of pension consolidators such as The Pension Superfund, Clara and, more recently, the master trust jointly launched by Abrdn and XPS Pensions. Visavadia, Wesbroom and Pickering admit that this pooled lunch, to stick with the sandwich metaphor, is now an option on their clients’ agenda. “We need to start thinking about the endgame differently,” Visavadia says. “As trustees, there are choices available to us and consolidators are one possible option. Not everybody is going to aim for a buyout. We need to keep an open mind, especially when employers are seeing buyouts as quite an expensive proposition.”


transparency around it,” he says. “It is not clear whether I need to hold 100% or 110% of my technical provisions because the price changes almost every week and we cannot track it in any meaningful way,” Visavadia adds. “Another problem is that as schemes are better funded, the supply-demand equation changes, and as demand for buyouts goes up, the price goes up and that might mean that none of us can afford it. The opaqueness of the pricing of buyout deals is really uncomfortable,” he adds.


Packed lunch But a buyout is by no means the only option on the cards, and it is the most expensive way to deal with outstanding liabilities, as most trustees are well aware. They have to target the most prudent funding level, factoring in the insurance premium they would have to pay for disposing of their liabilities. And trustees, by nature, have to be frugal. Their priority has to be the financial interest of scheme members, rather than that of the sponsor or insurance company. However, on the journey towards the endgame, the home-made sandwich, also known as self-sufficiency, has for the first time been overtaken by the slightly more expensive prepacked meal deal, also known as buyouts. Almost half (47%) of pension schemes are planning for a buyout meal deal, compared to 34% for self-sufficiency, according to Aon. Perhaps more importantly, the share of those planning to pick up their lunch along the way, also known as technical provi-


Fast forward Regardless of which de-risking option trustees choose, the defining factor remains that the current market environment might bring the end of the DB scheme era forward, Pickering predicts. “DB schemes that are already closed to further accrual will want to transfer as quickly as possible, particularly those with overseas parents,” he says. “At one time, US employers did not like the idea of journey planning, they just wanted their assets to sweat. Whereas now, they increasingly find that by hanging onto a closed DB scheme, they are carrying an unre- warded risk.


Realistically, for schemes that are not fully hedged, buyout has moved a bit further away, unless you have a benign sponsor who is prepared to put more money in. I do not see many sponsors doing that in


the current environment. Kevin Wesbroom, Capital Cranfield


July–August 2022 portfolio institutional roundtable: Endgame investing


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