News

Schemes reluctant to explore new avenues

According to recent surveys of UK defined benefit (DB) schemes conducted by Barclays Global Investors, Mercer Consulting and Aon Consulting, most schemes still have some way to go in diversifying their scheme assets beyond traditional asset classes, setting target returns for their asset portfolios and de-risking their schemes via swaps. Misconceptions surrounding costs and complexity were cited as the principal reasons for inaction.

Another FTSE 100 scheme buyout on the horizon

Following Friends Provident’s lead in being the first FTSE 100 company to have its DB pension scheme bought out, fellow FTSEconstituent Tate and Lyle has been conducting an unofficial auction amongst the major buyout firms in attempt to offload its £870m DBscheme. In its most recent accounts, the company, which recently celebrated 130 years of sugar refining in East London, shows the scheme as being in IAS19 surplus.

Live and let live – part 2

A number of investment banks and pension fund insurers have stated their intention to offer longevity hedging solutions, following the lead taken by buy out firm, Lucida, in February. As reported in the February edition of Pensions Watch, Lucida announced an industry-first longevity swap transaction with JPMorgan based around the latter’s Life Metrics index. Since then, Credit Suisse and Natixis have been developing swap- based solutions around longevity indices, where, quite simply, the scheme or buyout firm pays an income stream to the swap provider based on current longevity expectations and the swap provider pays out over the lives of the scheme members. As with any swap, these can be both traded and unwound. Meanwhile, Brighton Rock Insurance, Pensions First and the Pensions Insurance Corporation have been developing longevity insurance policies, whereby a scheme pays fixed annual premiums to guard against its scheme members living longer than expected.

The numbers don’t stack up

The UK’s 6,000 or so occupational pensions scheme actuaries have come under scrutiny from the professional oversight board of the Financial Reporting Council (FRC) for allegedly using unrealistic investment returns and longevity assumptions that permit scheme sponsors to minimise contributions to occupational pension schemes. Entrusted to look after scheme members’ interests byacting for scheme trustees, many scheme actuaries are criticisedby the FRC for also acting on behalf of the scheme sponsor. Consequently, the FRC has issued two discussion documents that combined seek to promote higher quality work and the greater accountability of the actuarial profession.

Risk sharing key to stemming DB scheme closures

Following on from BAe’s innovative longevity risk sharing agreement with its defined benefit scheme members in 2006, many in the pensions industry believe that well developed, simple risk sharing ideas could stem the closure of DB schemes. Many of the proposed solutions, that include the conditional indexing of member benefits, may well find their way into this year’s Pensions Bill, which is due toreceive royal accent in October.

And finally…

Read all about it: Desmond says OK to pensions contribution holiday

Richard Desmond, the tabloid publisher and operator of adult TV channels, last year opted out of topping up his pensions pot with yet another £40m contribution. Instead he set aside £17mto purchase an 8-seater corporate jet to meet the increasingly international demands of launching OK magazine in the US, Spain and the Philippines. Amazingly, exclusives, such as Jamie Lynn Spears’ (yes, who?) pregnancy, were not sufficiently attention grabbing to prevent losses mounting at the “celebrity” magazine.

Buyout affordability index

Paternoster, the buyout specialist, has launched a quarterly buyoutaffordability index. Based on the age, gender and benefit profile ofa typical scheme, the index highlights the effect of changing marketconditions on the cost of buying out a DB scheme’s liabilities.