This article highlights key insights from Barnett Waddinghams Employer Conference, which focused on the impact of change on companies’ pension strategies. We explain how to set a dynamic pension strategy that will be resilient in the face of changes in markets, whilst remaining cost effective over the longer term.

Pension strategies have evolved
Current levels of deficits arising from low gilt yields may have felt like a bolt from the blue, but this was no meteorite to kill the DB dinosaur. Instead, it has been the impetus for schemes to start to take small steps out of the water.
A traditional buy-out can seem like an unreachable goal for employers struggling to fund deficits. Instead, companies are now focusing on reducing risks to a comfortable, but not excessive, degree. A scheme can then pay pensions as they fall due as originally envisaged. The scheme will shrink over time, and further options can be considered if and when they would be of benefit.

This means that cash payments into and out of a scheme are becoming increasingly important. As more members retire, it’s unlikely that the employer’s contributions will be enough to cover the payroll. Schemes are looking for alternative ways to use their scheme investments to meet cashflow needs. This is a particular issue where a scheme has seen an increase in requests for transfer values, as transfer values can be a significant chunk of a scheme’s assets.

Employers therefore now focus on core investment and funding issues, rather than looking for the silver bullet that will solve their pensions problem. There are also ways that employers can accelerate the winding-down of their scheme in small steps, through liability management such as pension increase exchange and commutation exercises.

Full content: Actuarial Post