Star Group has decided to conduct a medically underwritten mortality study for its defined benefit scheme, as it works on tackling an increased deficit while reducing investment risk.
DB deficits have recently soared to around £1tn, putting further pressure on schemes to search for solutions to reduce their liabilities.
The £240m scheme, which provides pensions benefits for staff employed in newspaper publisher Claverley Group, has been “in discussion with the company about trying to gain more information about the membership of the scheme”, state minutes from a pension committee meeting in April.
According to a scheme spokesperson: “The medically underwritten mortality study has been approved and will take place in the autumn”.
The more information we can provide about the membership, the better the planning to meet future liabilities.
Star Group Pension Scheme committee
“Mortality rate is a key factor for determining the liabilities of the scheme (and hence the deficit) and has historically been calculated using trends from the scheme and postcodes,” read the April minutes.
However, the documents state that "the more information we can provide about the membership, the better the planning to meet future liabilities".
“A MUMS survey is likely to involve using an unbiased third party who will contact a representative sample of the members to ask them to complete a questionnaire on health and lifestyle,” read the minutes.
Introducing incentives
“It is hoped that members are willing to take part, as it is in everyone’s interests that we know as much as possible about the people who will draw upon the fund,” the minutes continue. “An incentive such as a gift voucher or free draw for a holiday may be used.”
Furthermore, the scheme decided that Claverley-branded letters should accompany any mortality study communications, “so members have confidence that the company is involved in the project”.
The scheme has experienced a deficit increase of £30m. “It is a reflection of the stock market performance. The world’s economies have been affected by the economy in China, the oil price and other key factors,” the documents state.
A number of measures are being taken to derisk. In autumn 2015, £10m was moved to a diversifying strategies fund, which employs multiple investment strategies to seek long-term returns with less volatility.
Earlier this year, the scheme found out that this move “had a positive impact on the fund at a time when markets were disrupted”. This has prompted the trustees to plan another £10m investment in the diversifying strategies fund.
Better data
Andrew Gething, managing director of data collection company MorganAsh, said a company can get a clearer view of its scheme’s mortality due to the fact that “if you get better data, you can make a better estimate”.
Gething said there are a number of reasons why a scheme might undertake a medically underwritten mortality study.
One reason is “good risk management purposes”, and another is because “you may be looking to go for a buy-in or buyout in the future”, he said.
He added that sometimes the study is used to support company merger and acquisition activity, while it can also be carried out because there is a dispute between the company and trustees.
One of the most popular reasons, he added, is to obtain better data to see if the pension deficit can be reduced.
Ruth Ward, senior consultant at consultancy firm JLT Employee Benefits’ buyout team, said that one does not usually look to conduct a mortality study “unless you thought it might make a big difference for your scheme”.
However, Ward noted that when it comes to “approaching an insurer for a buy-in or a buyout quotation, you would always have to disclose that you’ve done this study” and that “might affect whether or not insurers would quote for you”.
Reassuring your members
A potential stumbling block can be getting scheme members to take part in a study in which sensitive data is involved.
Roger Cooper, head of trusteeship at independent pensions consultancy Pi Consulting, said that “when writing to members to ask them to participate” in this kind of data collection exercise, it is important to make it clear to them “that the information is purely to be used for the purposes of this exercise, and that the information is secure”.
Cooper added that the key is to emphasise to members that their benefits will not change, while communicating clearly to give them the confidence that the data collection is not linked to any sort of scam.
