Consultancy Services - Liability Management


Rob Dales FIA Rob Dales FIA

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 liabilities.

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 limits.

For further details, please contact us.