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Mike Freer, of BWCI, explains why there has never been a better time to explore the options for these structures
COMPANIES with defined benefit pension schemes on their books may have noticed them quietly moving into surplus (ie holding more money than is forecast to be required to pay all members’ benefits) in recent years.
This, combined with the expansion of insurance offerings available locally, presents new opportunities for these, often legacy, arrangements.
The most notable option is a buy-out, where a scheme pays a one-off premium to an insurer, which in turn pays the members’ benefits (fulfilling the scheme’s purpose and allowing it to be wound up).
This is generally seen as a win-win, as the security of members’ benefits increases (as they become backed by a large, well-funded insurer), and any residual surplus can often be paid back to the sponsoring company (along with removal of any ongoing running costs and governance burden).
Buy-outs have been uncommon in the Channel Islands, but activity is now rapidly expanding for schemes of all sizes. This is unsurprising given that this opportunity may not be around for ever, as changes in financial conditions could erode surpluses and insurers could lose their appetite for local business. The local landscape can present challenges (compared to pension schemes in the UK) but these can typically be overcome.
While buy-out is likely to be of interest for many, it is not the only option. There are often other ways to wind up schemes, and larger schemes may also wish to explore run-on where schemes can continue to generate value (for sponsors and/or members) through continued investment return.
The time has never been better to explore options and opportunities for defined benefit pension schemes.
