When the risks of DB schemes are considered it has led in many
instances to significant pension changes and either:
At these times of change PCS can advise the company as to how
they may restrict the potential for increased liabilities and,
where appropriate, effecting agreements directly with pension
scheme members that have the effect of reducing scheme assets and
A closing of the defined benefit plan for all future employees
but existing participants can continue (usually on a reduced
A closing of the defined benefit plan to future accrual;
A closing of the defined benefit plan for the future with a
new defined contribution proposition instead.
Strategies can include:
Purchasing annuities (either selectively or in bulk);
Offering incentives to take transfer values;
Assessing the viability of buying out some pension
Maximising Tax Free Cash Sum (TFCS) take up;
Modifying past rights to replace a fluctuating liability with
a fixed one.
The immediate and deferred annuity market seems
undercapitalised and uncompetitive. Capital is flowing into the
market and new product lines allowing the buyout of all or part of
liabilities at commercially viable cost will come to the market.
PCS are close to developments and are often involved in
origination, allowing us to introduce products as they become
available. Another example is credit insurance (with or without
security), which is a less conservative approach that can be
justified both in cash requirement and investment. Other forms of
security may include bank guarantees, letters of credit, contingent
asset security or the use of captives.
Creative use of other vehicles without the use of cash can
often allow a higher risk investment strategy i.e. more investment
in equities. The benefits are obvious; the opportunity for greater
returns for the scheme and the resultant reduced funding burden on