Run that one past me again

One such riddle is the offer of enhanced annuities to members of small defined benefit schemes that are not actually enhanced, for the member that is. Medical underwriting for schemes with pensioner populations of fewer than 400 can lead to small employers getting a welcome and unexpected reduction in the size of their liabilities, and it provides a cute niche for consultants and for specialist annuity providers such as Partnership and Just Retirement.

The confusion lies over whether it is in the scheme and the members’ best interests. So the Pensions Institute has come to the rescue with a report entitled A Healthier Way to Derisk – sponsored by some of the people above. The key takeaways are that Professor David Blake and Debbie Harrison, the authors of the research, found that a typical saving on liabilities was 10 per cent, and that a bulk buy-in of £10m-£20m would incur £100,000 of legal, consultant and broker fees (0.5-1 per cent).

So the employer and advisers should all win, but what about the members? As explained, they get no enhancement in income but instead, in theory, get greater security. A young up-and-coming insurer should offer more security than a sponsor in a troubled industry (the report notes a greater rate of sponsor weakness among smaller employers), while the active members should gain extra security from their sponsor having less of a financial burden to its DB scheme. Though it should be stated the security in each case has been questioned by the report. Shall I run that one past you again?