The End-states for Defined Benefits Pensions Schemes (Previously known as Self-sufficiency, Buyout and Consolidation Working Party) was established as a follow up to the Running Off Mature Schemes Working Party (“ROMS WP”).

Introduction and objectives

The ROMS WP considered at a broad level the topic of maturing schemes, recognising that this topic was becoming increasingly important given that large numbers of UK-defined benefit pension schemes are maturing.

One of the key recommendations of the ROMS WP was that mature schemes should have a clear end destination in mind and a detailed run-off plan that works towards that, and the ROMS WP introduced a framework for such run-off plans.

To date, the typical end game destinations (where defined by trustees) for schemes, other than poorly funded schemes with weak employers, have been self-sufficiency or bulk annuity buyout. There has tended to be an assumption by many that for all but the largest schemes the end destination should be bulk annuity buyout. The ROMS WP highlighted that even where there was a self-sufficiency end game destination what “self-sufficiency” meant in practice was often not defined in much detail.

The DWP’s 18 March 2018 White Paper highlighted that trustees are often short-term in their outlook. DWP is engaging TPR in the currently ongoing update of TPR’s guidance on statutory funding objectives in conjunction with aspects such as the proposed Chair’s Statement. Importantly, The White Paper introduced a proposal for commercial consolidation vehicles under which employers can separate from their sponsor employer with the scheme entering a vehicle that is less well capitalised (ie less secure) than bulk annuity buyout. The rationale is that for schemes that are unlikely to be able to afford a buyout a transfer to a commercial consolidation vehicle could improve member outcomes in some (not all) circumstances.   

This suggests that as well as end destinations that usually seek to deliver benefits in full (eg self-sufficiency, buyout) actuaries may soon need to start advising large numbers of clients on commercial consolidation vehicle end destinations that focus on member benefit expectations and “good customer outcomes” (to borrow a phrase from the insurance world).  Such commercial consolidation vehicles are likely to take a variety of different formats meaning comparison and client advice will not be straightforward.  

Given all the above context the ROMS WP recommended that a follow-up Working Party should be established to research the various facets to consider when assessing the target end game and options for a mature pension scheme. The brief for such a follow-up Working Party is below.

Also, separately, actuaries are likely to get involved in the establishment and operation of commercial consolidation vehicles.

Outputs:

Chair Costas Yiasoumi
Membership 15
Established 2018

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Contact Details

For more information about Pensions working parties contact the Communities Team.

professional.communities@actuaries.org.uk

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