FTSE 350 pensions: liability management under the spotlight

Published by Simon Taylor, Tom Hargreaves on

Since the Government’s 2014 Budget, there has been a steadily increasing focus on transfers from defined benefit (DB) schemes to defined contribution (DC) arrangements, which has led to around 10% of FTSE 350 schemes undertaking transfer exercises. This has reduced the FTSE 350 pension buyout deficit by roughly £2.5billion.

While transfers benefit the member by offering more independence and flexibility, they also benefit the sponsor. The risk associated with providing benefits to that member in the future is removed, whilst a scheme’s funding position tends to improve, with benefits generally settled at less than the cost of ongoing funding. This is certainly less than the cost of insuring benefits with an insurer. However, it is important that members are making transfer decisions that are in their best interests. 

As such, there is an increased focus in the industry to regularly review transfer terms in order to help scheme members, offering transfers at retirement and providing members with access to advice on the best options available to them. 

While transfer exercises can be reasonably cash intensive, they can bring forward buyout dates and settle liabilities in a cost-effective way. But for sponsors and members to benefit from the opportunities available, timing is crucial. 

This exclusive study into settling liabilities for FTSE 350 DB schemes is now available to download.

"With increasingly volatile markets, the risks facing DB pension schemes and their sponsors are greater than ever. It’s vital that schemes settle their liabilities in as short a timeframe as reasonably affordable, while ensuring they keep the needs of their members front and centre. Given the increased demand for flexibility from members, pension transfers are a core part of the discussion. It’s crucial that companies encourage member engagement with their benefit options across the span of their career, and especially for employees approaching retirement…"
Simon Taylor Barnett Waddingham

 

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FTSE 350 pensions: liability management under the spotlight