Merchant Navy pension fund considers DC scheme to offset Section 75 risk
UK - The UK's £3.3bn (€3.7bn) Merchant Navy Officers Pension Fund (MNOPF) is considering the launch of a defined contribution (DC) option to increase its number of active members.
MNOPF Trustees chief executive Andrew Waring told IPE the scheme, with only 2% of members active following its closure to new entrants, faces a "pipeline" of Section 75 events.
Waring noted that the buyout debt would therefore only be shared between an ever-shrinking pool of statutory employers, with an imbalance between the buyout debt measured on an ongoing basis and by the Pension Act's Section 75.
"We are very mindful of employer circumstances, and, in the extreme, an employer triggering a section 75 event can potentially trigger an insolvency event, which is clearly not in our members interests," he said.
"So one of the series of tools for managing their exposure - introducing a DC option within the new section of the plan - would allow, for example, that section to be open to new members."
Waring said no firm decision had been reached to open a new section of the scheme.
But he said employers would welcome it if the trustee felt it appropriate to go ahead with the change.
"It's quite a long way off," he said. "If we did do something, we would be looking to do it later this year, early next."
However, even if the change were not implemented, under current regulation, the Section 75 event can be prevented if the scheme trustee and employer believe they will be able to hire a new active member within 12 months - with an expended 36-month grace period under consideration.
Waring also spoke highly of the scheme employing Towers Watson as delegated chief investment officer, with Hymans Robertson acting as independent investment adviser to monitor the fiduciary mandate.
Of the Hymans Robertson appointment, he said it had added "gravitas and balance" to the fund's investment committee.
"It's a new role that's still evolving, but again working very well and bedding down," he said.
He said he had "no reservations and no regrets" about the shift, with the delegated CIO leaving the trustee to focus on strategy.
"Towers [Watson] has been beating the benchmarks set in their agreements," he added.
"It's only been a year, so we mustn't get carried away, but [there are] very good early signs."