Consultancy Services - Liability Management
Enhanced Transfer Values
Pension liabilities are a material
factor in the success of a business. The triennial actuarial
valuation now often leads to trustees seeking significant increases
to contributions and the volatility of the financial markets leads
to uncontrollable changes in accounting deficits. Whilst a
bond-based investment strategy can reduce the volatility, it does
come at a cost and is no defence for increasing longevity.
Increased contributions do reduce the
deficit, but there is no way of getting these back if you pay too
much and it does nothing to reduce your exposure to the
Companies generally have some control
over factors that impact the business, but this is not the case
with pension liabilities. The only real solution is to remove the
liabilities. This can be achieved by buying out the benefits with
an insurance company but, even with the recent changes in this
market, the costs are still significantly higher than most
companies are prepared to pay.
One option is to offer members an
opportunity to transfer their benefits out to another pension
arrangement, usually a personal pension plan. This is effectively a
transfer of risk from the company to the member.
The current transfer values offered by
most trustees are not sufficient for the majority of members to
accept this transfer of the investment risk. So that the option to
transfer might be considered suitable by the member, the trustees
could offer an enhanced transfer value.
Transfer Value Analysis Modeller
Our financial modeller analyses current membership details
and provides a scenario analysis of the potential enhancements that
could be offered to members. There are many different approaches to
enhancing transfer values and the correct approach depends on the
funds available from the company, ensuring that members understand
the offer and, in some cases, the interaction with HMRC
details, please contact us.