Low sponsor dependency
Also known as ‘self-sufficiency’, this involves increasing the likelihood of reducing reliance on the sponsor in the payment of benefits. The extent to which a scheme can achieve this depends on the funding method used and the investment strategy adopted.
We make use of sophisticated risk modelling to assess the various options, projecting how the funding position will develop over time in each case.
Insurance buy-outs and buy-ins
Securing benefits by purchasing an insurance policy tends to be an expensive approach, due to the cautious investment strategies of insurance companies and high contingency margins in their pricing.
We are in regular contact with insurance companies, and have up-to-date knowledge of the latest pricing terms. This allows us to provide robust estimates of the likely buy-out costs, and identify opportunities when they arise in the market.
Our analysis takes account of:
- The lower insurance cost of pensioners compared with non-pensioners
- Members taking cash when they retire, which brings down the cost of insurance
- Costs associated with buy-out, such as legal fees and insurer selection.
Consolidation vehicles can be used in arrangements that take on the liabilities of a scheme, but at a cost that is typically 10% less than an insurance buy-out. This market is in its infancy but should be investigated where insurance buy-out is under consideration.
We review the providers operating in this area and can advise on the feasibility of this approach, as it will not be suitable for every scheme.