UK pension plans have become “more and more focused on their goals – which are also becoming more achievable,” according to a recent survey by Aon.
Aon’s 2021 Risk Settlement Survey – Journey to Settlement, which surveyed 120 UK pension schemes ranging in size from £ 50m (€ 58m) to over £ 1bn. pounds sterling – reviewed progress and fund planning for risk resolution.
He showed that although only 34% of plans now target buyback transactions, the percentage steadily increases as plan funding positions improve and buyback becomes more feasible.
Michael Walker, Risk Settlement Group Associate Partner at Aon, said: “The good news is that 77% of programs are now over 80% funded of their end goal. However, at present, only 26% of programs plan to reach their end of the game in less than five years. “
He added that the programs may be overestimating how long it would take them to achieve this goal.
“We can understand why they might think this is the case, but careful forecasting can increase the risk of missing out on opportunities throughout the journey,” he said.
He noted that over the past few years, the time taken to achieve endgame goals has consistently been shorter than expected, so he suggested that trustees and plan sponsors should ensure “that they are fully prepared to take the next step when the opportunity arises ”.
Aon’s survey is available here.
The John Good plan supplements the bulk annuity with Legal & General
John Good & Sons Limited’s pension scheme has entered into a £ 17million full plan buy-back transaction with Legal & General Assurance Society Limited, covering the benefits of more than 80 pension plan members.
The scheme – an existing client of Legal & General – has also used Legal & General Investment Management (LGIM) as a fund manager since 2003.
Preparing for the transaction was an important part of the program process, which involved extensive data cleansing and risk reduction of program assets in LGIM’s Buyout Aware funds.
According to an announcement, these funds are specifically designed for programs approaching redemption, with an investment strategy that aligns with the factors that affect redemption prices.
When market conditions developed favorably, the program reacted quickly to lock in the prices of its LGIM Buyout Aware fund units, he said. This process ensured that the program had the price certainty it needed to then agree to the terms of the buyout and complete the transaction.
XPS Pensions Group advised the plan on the transaction, while Arc Pensions Law provided legal advice.
John Rutherford, Program Administrator, said: “We are very happy to have reached this important milestone in our journey to provide our members with greater security with a well-known and respected company. “
Lincoln Pensions Launches Travel Planning Tool
Lincoln Pensions launched PensionSketch, an integrated plan projection and risk modeling tool.
This will allow administrators and sponsors to define a pension fund travel plan that best balances all key risks, he said.
PensionSketch uses a scenario-based approach to plot a course, which incorporates both sponsor and plan modeling. The tool also includes a risk radar that provides a dynamic assessment of the risks that each potential travel plan involves.
The new tool was designed to improve three key areas:
- end-state decision making – allowing decisions to be made in the context of the reliability of the long-term commitment;
- the length of the journey plan – which can be compared to the visibility of the engagement; and
- investment risk – which can be considered in relation to the risk capacity of the sponsor.
Lincoln Pensions said PensionSketch was created before The Pension Regulator’s new funding code of practice, which is expected to place increased emphasis on travel planning.
The funding code is also likely to compare acceptable fast-track review submissions against plan maturity and strength of engagement, he said.
As a result, Lincoln said, travel plans must be viewed in the context of a convention that sustains a program until it reaches its end state, with the affordability and visibility of the convention indicating what end of party is appropriate, when it needs to be achieved, and how diets can get there.