DB schemes – managing risk (without transferring it)

Risk management alternatives

With many DB schemes finding themselves in an improved funding position, the risk transfer market has been booming of late. But a buy-in or buy-out won’t necessarily be the right option for all, or even available to some.

Where those options are not on the cards, we can help trustees explore what other risk management strategies might be, and the legal implications of each, including:

  • setting up common trustee boards for employers with multiple DB schemes – so as to benefit from economies of scale
  • merging DB schemes forming part of the same corporate group – helping to streamline administration and costs
  • capital backed solutions – which can provide greater certainty around investment performance levels whilst enhancing member security.

Running on your DB scheme

Government plans to help DB schemes distribute available surplus are now well underway, making the prospect of running on to generate or increase a surplus a more attractive option, subject to certain safeguards. Likewise, changes to allow one-off lump sums to be paid to members from surplus are also being considered, with pensions tax restrictions currently acting as a barrier to such payments.

Whilst they have been somewhat scarce over the last couple of decades or so, DB surpluses are not a new phenomenon. Over the years, we have advised trustees and employers on the full spectrum of existing ways to use surplus, including:

  • distributing it to sponsoring employers
  • improving member benefits, and/or
  • reducing or temporarily ceasing contributions.

Open schemes

Some DB schemes are still a long way off their endgame, eg because they remain open or have only recently closed to future accrual. As advisers to several high profile open DB schemes, we are well aware they may feel like a niche sport. But, as many are still open to new joiners and have good funding levels and long-term covenants, they are clearly still very much in the game.

Our expertise ranges from everyday advice to more complex discussions around ongoing funding and investment, as well as risk management alternatives.

Ongoing advice

Whatever the reasons for running on, we appreciate that DB trustees and employers need to stay on top of their legal and regulatory responsibilities, as well as the myriad of DB business-as-usual tasks. Our extensive knowledge of all things DB means that we are uniquely placed to help you tackle this workload.

Want to find out more?

For more information about our work in this area, please go to our regulation and governance page or contact one of our lawyers below.

Related insights