Most schemes will be considering whether to buy out their liabilities with an insurer at the earliest opportunity or become self-sufficient and run off liabilities.
Schemes considering running on could use DB surpluses to support DC provision, or offer discretionary increases to existing DB members.
Some sponsors may prefer to keep surplus (and assume risk), rather than pay away profits to an insurer. This could become more attractive if the government enacts measures to make surplus extraction from DB schemes easier.
It’s consulting on measures to do so, with the aim of incentivising investment in higher-returning assets.
Important detail is still to come, and reducing the 35 per cent tax on surplus refunds to 25 per cent is unlikely to move the dial much in isolation, though it may be read as a statement of broader intent to make changes.
Schemes that want to insure must plan and prepare carefully to get the best deal, and need to take a targeted approach to the insurance market.
As more schemes have become ready for buyout, the pension bulk annuity market has boomed. We expect new transaction records to be set in 2023, and demand is unlikely to wind down in the near term.
The first transfer to a superfund happened this year, paving the way for other pension schemes to do the same.
Trustees and sponsors should carefully consider which endgame is right for their scheme, and be aware of evolving options in a landscape that’s likely to keep changing for years to come.
Laura McLaren is a partner at Hymans Robertson
