Do all roads still lead to buyout?
Do all roads still lead to buyout?
18 Apr 2024
Defined benefit (DB) pension schemes have never been better funded, and buying-out pension scheme liabilities is within reach for many, with record numbers of schemes completing transactions in the bulk annuity market.
However, with the government considering potential radical changes in policy, the most appropriate long-term solution for schemes may not be as clear-cut as it once was, and running on could create value and upside potential. Just because you can afford to buyout with an insurer, no longer necessarily means you should.
We set out why it is essential that all pension schemes consider whether their long-term target remains appropriate in light of potential future regulatory changes.
Key Highlights
- There is political ambition to boost the UK economy by creating scope for pension schemes to run on and invest their surplus for the benefit of both pension scheme members and scheme sponsors.
- The anticipation of this potential industry revolution introduces additional factors that need to be considered by schemes that might otherwise have chosen buyout to be the obvious end game solution.
- A buy-in or buyout transaction is generally irreversible, and whilst it will continue to be the route for many schemes, it is important to explore all options before you commit.
- All schemes, but particularly those preparing their investment strategy to be ‘buyout ready’, should consider the implications and potential upside of the potential regulatory change.
We set out our endgame checklist, examine the drivers for change and consider why schemes might choose not to buyout and instead run-on in our Investment briefing. Download the PDF here to read more.
Running DB pension schemes on effectively:
A blueprint for trustees and employers
In response to the Government’s recent consultation on how DB schemes could be encouraged to build and use surplus for the benefit of members, employers and the wider economy, XPS launched a survey to gather a wide range of views from trustees and employers. The survey sought views on whether trustees and employers would actually consider running schemes on and, if so, the safeguards that they would like to see to make this a viable strategy.
The survey has been completed by 150 trustees and employers, representing over 300 pension schemes with assets totalling an estimated £420 billion. This represents approximately one-third of the asset base of the entire private sector UK DB pensions market.