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Liability management and risk reduction

Defined benefit (DB) pension liabilities can have a hugely significant impact on the financial strength and profitability of a company. There are a number of ways employers can reduce these liabilities and the risks attached to them.

For schemes which are still allowing members to accrue benefits, a decision to cease future accrual, or cap or limit pensionable salary, is an obvious way to remove significant liabilities from the scheme while reducing future costs.

For more mature schemes, securing annuities with an insurance firm is likely to be the preferred route, however is often unaffordable. Removing liabilities through other exercises such as transfer value exercises, trivial commutations or pension increase exchange (PIE) exercises is less expensive than purchasing annuities and effectively achieves the same end goal. These options can also be very popular with members as they provide them with additional flexibility around their retirement outcomes.

As a more subtle approach, stochastic asset liability modelling can be used to determine the optimal investment strategy, often without reducing expected investment return and hence the need to increase contribution requirements.

Choosing the right scheme for your needs

Our team has many years of experience advising on these traditional risk removal projects, across a variety of scheme sizes, complexities and maturities, and can advise you on a tailor-made solution specific to your objectives.

Furthermore, the emergence of new consolidator offerings in 2018 is providing an alternative approach to full risk removal rather than via the traditional insured solution. We can provide advice on these new offerings, their relative attractiveness to employers and trustees in varying situations, and the suitability and feasibility of these, given each scheme’s specific circumstances.

Partner, Head of Pensions Advisory Services

Paul Brice

+44 (0)20 7728 3423

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