Table of Contents

  1. Overview
  2. How we arrived here
  3. A statistical summary
  4. Sponsors and solvency
  5. Risks of defined benefit schemes
  6. Opportunities for investment banks
  7. Options for restructuring 
  8. The buyout option
  9. Asset managers
  10. Consultants
  11. The new contenders
  12. Longevity risk
  13. The long-term provision of pensions
  14. What will happen during the next two or three years?

Overview

  • The quality of the promise
  • Defined benefit under pressure

How we arrived here

  • The first state pensions
  • Workers gain more bargaining power
  • Surviving the 1974 bear market
  • Rising longevity becomes expensive
  • Controversy among the actuaries
  • Another Pensions Act

A statistical summary

Sponsors and solvency

  • The approach to funding
  • Pioneering US legislation
  • The objectives of the accountants
  • Actuaries versus accountants
  • Governance issues
  • Risk-related regulation
  • Impact on credit ratings
  • Flexibility versus security
  • Sponsors in conflict with trustees

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Risks of defined benefit schemes

  • Financial Assistance Scheme
  • Investment risk
  • Interest rate risk
  • Inflation risk
  • Longevity risk
  • Political risk
  • Regulatory risk
  • PPF risks
  • Trustee risks
    • Standard & Poor’s
  • Competitive risks

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Opportunities for investment banks

  • The control of absolute risk
  • Dealing with the Pensions Regulator
  • The roles of investment banks
  • Pressures on the investment banks
  • Derivatives
    • Bond yields
    • Inflation hedges
    • Equity derivatives
  • The image of investment banks

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Options for restructuring

  • The pension haves and have-nots
  • A search for options
    • Example 1: BAE Systems
  • Sharing of risk
    • Example 2: British Airways
    • Example 3: Co-operative Group
    • Example 4: Barclays Bank
  • Public sector pensions may be unaffordable too
    • Example 5: Royal Mail
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The buyout option

  • The ‘with-profits’ parallel
  • Regulatory inconsistencies
  • Longevity factors can create distortions
  • Cross-border regulatory issues
  • Caution over the Boots precedent
  • Responses to the M&A factor
  • Buyouts versus the opportunists
  • Waiting for favourable conditions
    • Some of the buyout contenders
  • Defined benefit pension scheme risk transfer: the new market establishes itself
    • Cost issues
    • Is buyout cheaper now?
    • Financial security for scheme
    • members
    • Economies of scale
    • Market size
    • Advantages to sponsors
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Asset managers

  • The styles largely ignored risks
  • Cheap and cheerful tracker managers
  • Death of the balanced style
  • Managers of managers
  • The challenge of low market beta
    • The objectives of LDI
  • Scope in the defined contribution sector
  • The need for decumulation products
  • Alternative asset classes
  • Derivatives: vital but also dangerous

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Consultants

  • Under new ownership
  • Fitting within global HR giants
  • Relationships with investment banks
  • The relentless search for ‘alpha’
  • The long-term scope for consultants
  • Looking at 401(k) experience in the US
  • Default and lifestyle strategies
  • Facing the advice vacuum
  • A view from the Trustee

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The new contenders

  • Differences between life and pensions
  • Varied approaches to pensions restructuring
  • Some examples of the new entrants
    • Pension Corporation
    • Occupational Pensions Trusts
    • PensionsFirst
    • Aleva Advisor
  • Insurance sector entrants
    • BrightonRock Insurance
    • Tactica Assurance
  • Corporate finance entrants
  • Penfida Partners
  • Gazelle

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Longevity risk

  • Hedging longevity risks
  • Pension schemes have important differences
  • The Continuous Mortality Investigation
  • Building a derivatives market
  • The reinsurance route
  • Attracting in buyers and sellers
  • The precedent for a longevity bond issue
  • The huge volume of longevity risk
  • There is potential but it will take time
  • Incentives to target longevity risk

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The long-term provision of pensions

  • An opportunity for product providers
  • From collective to individual
  • Turner and the NPSS
  • The means-testing obstacle
  • The inadequacy of 8% contributions
  • Life companies fear subsidised competition
  • Investment options in DC schemes
  • Dealing with the mis-selling factor
  • Annuities and the Treasury

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What will happen during the next two or three years?

  • Key examples of current risks
    • Financial volatility
    • Accounting changes
    • Political pressures
  • Beneficiaries of upheaval
  • Squeezing out the retail sector
  • Developments in decumulation
  • Some final observations on the public sector

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TABLES AND CHARTS

  • T3.1: Pension fund assets as at end-2006
  • T3.2: Number of active members of occupational pension schemes 1953–2006
  • T3.3: Number of pensions in payment 1953–2006
  • T3.4: Pension schemes by foundation date
  • T3.5: Employer contributions
  • T3.6: More contribution levels
  • T3.7: Employer concern at the regulatory environment
  • T3.8: Overall funding levels
  • T3.9: Asset allocation
  • T3.10: The top 500 asset managers 2006
  • T4.1: Overall funding levels at end-March 2007 (£bn)
  • T7.1: Anticipated future changes in pension schemes
  • T9.1: Evolution of the ‘balanced’ style
  • T9.2: Pension fund investment returns, 1980–1999
  • T9.3: UK leaders in balanced pension fund management – assets at end-2004 vs. end-1998
  • T10.1: The future pension and investment landscape
  • T10.2: Pension consultants
  • T10.3: The leading global passive managers
  • T14.1: Average total contributions to DC plans
  • F3.1: Recent solvency trends

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