Editorial: If you’re short of gift ideas for your favourite veteran trustee or scheme manager, the Pension Protection Fund’s Purple Book could be a good shout.
Released just in time for Christmas, not only does it include the usual in-depth data analysis for the past year, but your giftee will also be taken on a trip down memory lane with a look back at defined benefit’s journey over the decade, as the lifeboat celebrates its tenth anniversary.
Sadly what it doesn’t shine a much-needed light on is the effect of the new pension flexibilities on DB funds – that will have to wait until next year, by which time the earth beneath the industry’s feet will probably have shifted once more.
But it does demonstrate a heightened risk awareness among schemes, which have continued to close to new members over the past 10 years, now at 87 per cent from 57 per cent in 2006.
The risk management narrative has also played out in schemes’ investment portfolios, which are backing ever further away from equities.
However, the levers available to schemes are few and, for many, a hell of a lot of time, work and money go into simply treading water.
Illustration by Ben Jennings
But there could be an opportunity on the horizon. Consultancy LCP is forecasting a bumper year in the buy-in space in 2016, made possible by a serendipitous collision of several factors, such as increased competition brought by new players to the market and greater insurer risk appetite due to more certainty around Solvency II.
Around a tenth of the UK’s largest sponsors are above the critical 80 per cent funding level mark at which momentum starts to gather for derisking deals. And if markets move favourably for pension funds, raising those levels, we could witness a beautiful marriage of increased capacity and demand.
This would undoubtedly benefit a swath of UK DB schemes, provided they move quickly enough to take advantage. But for the wider field, many will be asking searching questions about how to best plug their deficits and manage risks.
In a keenly read comment piece from Redington’s Rob Gardner in October, schemes were warned not to repeat the mistakes of the past and urged to find new ways to approach recovery plans. Sadly new ideas that are practical, visionary and credible are proving hard to come by.
Maxine Kelly is editor at Pensions Expert. You can follow her on Twitter @MaxineEK and the team @pensions_expert
