The buyout cost for UK defined benefit (DB) pension schemes could be reduced by around £100bn (€116.6bn) by offering a clear range of options to DB members, according to analysis by Hymans Robertson.

This saving equates to broadly a three-year reduction in timescales for reaching buyout, providing huge value for DB schemes and their members, the consultancy said, warning that many DB schemes are taking longer to reach their final point, unnecessarily, by not considering the role that member options can have.

The research looked at the value member options could have if applied across the full UK DB universe of approximately 5,200 schemes and around £1.7trn of liabilities.

It considered the impact of a range of member options including, early retirement, pensions increase exchange (PIE), bridging pensions and transfer values.

The findings showed that where pension schemes are more proactive in providing increased choice to members, then the benefits in terms of both the time and cost to reaching buyout can be materially reduced.

This means that schemes are exposed to less risk for a shorter period of time – benefiting both members and trustees.

Ryan Markham at Hymans

Ryan Markham, Hymans Robertson

Ryan Markham, head of member options at Hymans, said: “The value of being proactive around member options is significant. We’ve looked across the UK DB universe to help highlight this, but the relative value at an individual scheme level will also be significant.”

He also noted that by giving members increased choice within a scheme, members can access their benefits sooner “and in a different shape, which will better meet their needs, whilst not presenting them with an all or nothing decision like a transfer value”.

“As well as being attractive to members, especially in the current high inflation environment, these options can have material savings against the cost of securing the standard scheme benefits with an insurer,” Markham explained.

Redington launches independent testing service for trustees

Consultancy Redington has launched a new independent testing service for pension trustees to help them ensure their strategies are suitable and on track.

The new service – Pension Pitstops –provides an independent assessment based on seven key areas that can impact a scheme’s overall health:

  • goals and objectives;
  • sustainable investment;
  • risk management;
  • investment strategy;
  • liquidity management;
  • operational efficiency;
  • tech-based governance.

The service launches amid a challenging backdrop for defined benefit schemes, Redington said, as equities and bonds have had their worst start to a year ever, and inflationary concerns look set to continue.

As well as a tailored report, with ratings provided against each criterion via an intuitive traffic-light system, trustees will receive bespoke, independent guidance on how to tackle any problem areas, enabling schemes to put plans in place to address them before they become too difficult or costly to overcome.

If trustees have already identified a specific area they’d like to focus on – such as sustainable investment or interest rate hedging – Redington can provide a bespoke ‘fast track’ assessment, paired with recommendations.

Patrick O'Sullivan at Redington

Patrick O’Sullivan, Redington

Based upon Redington’s framework-based approach to strategic decision-making, Pension Pitstops aims to bring this tried and tested method to a broader range of pension schemes, helping more trustees secure better outcomes for their end-beneficiaries.

Patrick O’Sullivan, head of investment consulting at Redington, said: “For a pension scheme – particularly one on the road to their ‘endgame’ – a ‘set and forget’ strategy simply isn’t enough. Rising inflation, heightened market volatility and growing climate regulations are all timely reminders of the need to occasionally pause for breath and make sure that things are on track.”

He added that it is “crucial” that trustees know “where they are, where they’re going and whether they have everything in place needed to get there”.

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