Spence & Partners Presentation
Future Influencers Breakfast The Route to Buyout Tuesday 15th December 2015 Angela Burns – Spence & Partners
Average buyout funding level?
65%
How to plug a deficit? •
Cash
•
Liability management
•
Investment return
Firstly…. •
Pension scheme data is still in a mess – we all need to up our game
•
Unclear benefit structures increase risk of errors and additional liabilities
Valuation bases 10 8 6 4 2
0 Assets
FRS17 TV
Best estimate
SFO/TP
Contribution basis
Cessation
Exit basis
Liability Management •
(Enhanced) transfer values
•
Pension increase exchange
•
Early retirements
•
Trivial commutation Overall………
•
Reduce cost of providing benefits
•
Reduce risk
•
Make scheme more ‘buyout ready’
Case study – 2013 £m (Buyout)
Liability
Assets
Shortfall
Pre exercise
6.0
3.0
3.0
Liability extinguished
(4.7)
(2.6)
(2.1)
Post exercise
1.3
0.4
0.9
£m Liabilities extinguished
4.7
Cost to scheme
(2.6)
Cost to Company
(1.1)
Net saving
1.0
Private and confidential
7
Integrated Risk Management •
Regulator released guidance dated December 2015
• • •
•
Understand business risks Understand pension scheme risks Manage them holistically
Stochastic modelling is key
• • • •
Set objectives
Understand probability of success Manage downside risk Monitor
Set objectives
Assess output and agree strategy
Monitor
Summary •
Liability management (fix your data and benefits first!)
• • • •
•
Reduce the cost of providing benefits Move closer to fully funded on buyout Reduces risk Better insurance pricing terms
Integrated risk management
• • •
Understand risks faced Understand probability of success and downside risk Monitor
Thank you!
Average buyout funding level?
65%
How to plug a deficit? •
Cash
•
Liability management
•
Investment return
Firstly…. •
Pension scheme data is still in a mess – we all need to up our game
•
Unclear benefit structures increase risk of errors and additional liabilities
Valuation bases 10 8 6 4 2
0 Assets
FRS17 TV
Best estimate
SFO/TP
Contribution basis
Cessation
Exit basis
Liability Management •
(Enhanced) transfer values
•
Pension increase exchange
•
Early retirements
•
Trivial commutation Overall………
•
Reduce cost of providing benefits
•
Reduce risk
•
Make scheme more ‘buyout ready’
Case study – 2013 £m (Buyout)
Liability
Assets
Shortfall
Pre exercise
6.0
3.0
3.0
Liability extinguished
(4.7)
(2.6)
(2.1)
Post exercise
1.3
0.4
0.9
£m Liabilities extinguished
4.7
Cost to scheme
(2.6)
Cost to Company
(1.1)
Net saving
1.0
Private and confidential
7
Integrated Risk Management •
Regulator released guidance dated December 2015
• • •
•
Understand business risks Understand pension scheme risks Manage them holistically
Stochastic modelling is key
• • • •
Set objectives
Understand probability of success Manage downside risk Monitor
Set objectives
Assess output and agree strategy
Monitor
Summary •
Liability management (fix your data and benefits first!)
• • • •
•
Reduce the cost of providing benefits Move closer to fully funded on buyout Reduces risk Better insurance pricing terms
Integrated risk management
• • •
Understand risks faced Understand probability of success and downside risk Monitor
Thank you!
