Pensions Avengers assemble! What’s your endgame plan?

It’s an interesting time to be a trustee of a DB scheme. For the first time in a long time, many DB schemes are in a favourable funding position and, with the new DB funding regime around the corner, are going to have to look ahead and determine what the scheme’s endgame is.

So what’s your endgame plan? Which superhero are you going to pick to help support you on your journey?

The peak of human physicality: Captain Buy-out

For many well-funded and secure schemes, they’re going to team up with Captain Buy-out. These schemes will generally buy-in with an insurer, and then seek to buy-out and wind up the scheme, passing legal responsibility for the funding and payment of scheme benefits to the insurer. Schemes seeking to reach this goal will need to be funded at a level to purchase an insurer buy-in.

2023 was a busy year for buy-ins – you can see our highlights here.

Early preparation is key. Schemes considering a buy-in should start thinking early about producing a legally reviewed benefit specification that is checked against current admin practice.

The inventor: the Iron Man-Scheme

Commercial superfunds are the new (ish) option in the market for schemes that cannot access buy-out. Transfers to DB superfunds, such as the Clara Pension Trust, need to make sure they meet TPR’s three gateway tests in its guidance, being that:

  • the scheme cannot access buyout now
  • the scheme has no realistic prospect of buyout in the foreseeable future, given potential employer cash contributions and the insolvency risk of the sponsoring employer, and
  • the transfer must improve the likelihood of members receiving full benefits.

As well as meeting the gateway tests, and successfully applying for clearance from TPR, transferring trustees must also be satisfied that they “should” make the transfer to the superfund, ie that they understand the model of the receiving superfund, have considered any other available options and that making the transfer would be in the interests of scheme members.

Having advised the trustees of the first pension scheme to transfer to Clara, we at Sackers are well placed to advise trustees considering a transfer to Clara on the process and any subsequent transfer in an efficient and proportionate manner. Please contact Stuart O’Brien or Emily Rowley for more information.

The mystical ruler: public consolida-Thor

Earlier this year, the DWP consulted on options for DB schemes including proposals for a new public sector consolidator run by the PPF. Since then, the PPF has published its views on how a public consolidator could be structured.

We’ve not yet seen the response to this consultation, with many uncertainties around the detail of how this would work in practice. However, in broad terms the consultation suggested that this would be aimed at schemes unattractive to commercial providers ie those schemes rejected by Captain Buy-out and the Iron Man-Scheme.

Hulking up but feeling green? What to do if you’ve got surplus muscle…

With the favourable funding environment, some schemes are now finding themselves in surplus. The options for DB schemes consultation also included suggestions around changing the legal framework for schemes to return surplus to an employer.

It is yet to be seen how any such changes would interact with a scheme’s rules, which typically set parameters on how a scheme can use surplus when it is ongoing or in wind up. Either way, any changes to the legal parameters won’t remove trustees’ primary role in acting in their members’ financial interests and to act in a manner consistent with the purpose of the trust (ie the provision of benefits in retirement). This requires careful consideration by trustees as to whether they should use surplus in any proposed way.

It will be interesting to see how the outcome of the consultation addresses these areas.

Which pensions Avenger is your favourite?

DB trustees have a lot to think about, and the options and possibilities continue to evolve – so how do you know which Pensions Avenger is the right one for you to team up with?

The right option for your scheme is likely to be determined by a multitude of factors; funding level, scheme size, complexity of benefits and strength of the employer covenant.

In the words of Nick Fury, “You think you’re the only superhero in the world?…you’ve become part of a bigger universe. You just don’t know it yet.”

Pensions Avengers: assemble – welcome to the endgame.

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