Is that the "Will Hutton" who has managed to bankrupt just about every organisation he's had any executive authority over? If it is, then frankly I'd prefer to take investment advice from The Downing-Street Cat!
Even for closed funds (almost every private sector final salary scheme) there is a good case for funding the long distant liabilities with equities.
But, and it’s a big but, the trustees need to feel very confident that the sponsoring employer will be good for the cash in the form of additional contributions if the bet doesn’t come off. And few trustees can have that confidence since, having closed the schemes to new entrants, the last thing the sponsors want is ongoing P&L impact from historic pension liabilities.
That’s why sponsors have been fully aligned with the desire of trustees to achieve self sufficiency, without any further reliance on the sponsor, by becoming fully invested in bonds and swaps to match exactly the liability profile through to the last pension payment.
The lack of appetite of employers for paying any further contributions was also demonstrated by their encouragement of trustees to attempt to close any residual funding deficit from full gilt self sufficiency by using some of their long dated gilts as collateral to invest in equities. And we all know, and in particular Liz Truss, how that turned out!
So the likelihood of much equity investment in closed schemes even with distant liabilities is very low.
I suppose that a case could be made for merging several funds together on the assumption that it would shift liabilities, potentially making the case for equities at the longer end more viable.
I think this would be similar to Resolution and the endowment funds.
Sure. That’s what the buy out market (Legal & General / Resolution) does; I’ve no doubt they add equities into the mix where the original scheme trustees wouldn’t to earn extra margin on the liabilities they have taken on. But of course they have to back this with appropriate solvency capital.
For trustees of run off schemes it’s attractive in principle of course but there’s a price to be paid for offloading the liabilities. This can be off-putting unless the scheme sponsor wants to cough up (and many will as it’s a one off payment to get rid of a legacy issue once and for all) but otherwise it may not be economic until the scheme has diminished in size to the point where the running costs are disproportionate to what’s left.
But do we want the government ordering scheme trustees to enter into buyouts either in the normal market place or with the State bail out fund just to enable the very long end of the liability tail to be switched into equities with a government guarantee in lieu of solvency capital if the State fund is used?
Is that the "Will Hutton" who has managed to bankrupt just about every organisation he's had any executive authority over? If it is, then frankly I'd prefer to take investment advice from The Downing-Street Cat!
At least we know that Larry is able to lick his own arse properly.....
I think it makes more sense as a "nice pension fund you got there pity if anything regulatory would happen to it" type of shakedown,
Even for closed funds (almost every private sector final salary scheme) there is a good case for funding the long distant liabilities with equities.
But, and it’s a big but, the trustees need to feel very confident that the sponsoring employer will be good for the cash in the form of additional contributions if the bet doesn’t come off. And few trustees can have that confidence since, having closed the schemes to new entrants, the last thing the sponsors want is ongoing P&L impact from historic pension liabilities.
That’s why sponsors have been fully aligned with the desire of trustees to achieve self sufficiency, without any further reliance on the sponsor, by becoming fully invested in bonds and swaps to match exactly the liability profile through to the last pension payment.
The lack of appetite of employers for paying any further contributions was also demonstrated by their encouragement of trustees to attempt to close any residual funding deficit from full gilt self sufficiency by using some of their long dated gilts as collateral to invest in equities. And we all know, and in particular Liz Truss, how that turned out!
So the likelihood of much equity investment in closed schemes even with distant liabilities is very low.
I suppose that a case could be made for merging several funds together on the assumption that it would shift liabilities, potentially making the case for equities at the longer end more viable.
I think this would be similar to Resolution and the endowment funds.
Sure. That’s what the buy out market (Legal & General / Resolution) does; I’ve no doubt they add equities into the mix where the original scheme trustees wouldn’t to earn extra margin on the liabilities they have taken on. But of course they have to back this with appropriate solvency capital.
For trustees of run off schemes it’s attractive in principle of course but there’s a price to be paid for offloading the liabilities. This can be off-putting unless the scheme sponsor wants to cough up (and many will as it’s a one off payment to get rid of a legacy issue once and for all) but otherwise it may not be economic until the scheme has diminished in size to the point where the running costs are disproportionate to what’s left.
But do we want the government ordering scheme trustees to enter into buyouts either in the normal market place or with the State bail out fund just to enable the very long end of the liability tail to be switched into equities with a government guarantee in lieu of solvency capital if the State fund is used?