How do you solve a £2 trillion pensions problem quickly?

The UK's private sector pension liabilities, approaching £2 trillion in value, create a conundrum. Pension scheme trustees are generally motivated to lock down risk in the asset portfolio relative to the liabilities, even fully securing obligations through buy-out, and are under the spotlight of short-term regulatory scrutiny.

Company sponsors instead need to have regard to the question of value for their shareholders, or other providers of capital. They might ideally like to take a longer-term view of the risk vs return profile. Buy-out or buy-in might be a viable strategic option but only if done at a justifiable and cost-effective price.

Meanwhile, the insurance market is a victim of inefficiencies in the pensions system. Buy-out transfers run at mere £ billions a year. Insurers are swamped with too many exploratory requests for quotations to know how to sift the true transactions waiting to happen, from the scheme actuaries just learning how to price buy-outs for the sake of their advisory reports. Preparing a worthwhile quotation is currently a process which takes several weeks and costs corporates and trustees a lot in fees, time and money not always well spent.

Skyval Insure has just proved it can change all that. You can explore and execute buy-outs in a more informed way, with real price visibility. This new innovative service, now launched publicly and already being applied in buy-out opportunities, will allow you to obtain initial pricing from insurers in a matter of days. Six of the market's largest insurers, representing over 90% of the market, are now participating directly in Skyval Insure, the first service of its kind.

PwC is running a webcast on 8 December to tell you more ? Click here to register. In the meantime, here is a summary of what Skyval Insure can deliver for you:

  • Good for trustees - need only proceed to the full buy-out process once you have confidence about affordability of the transaction, informed by a panel of real insurers and initial pricing indications
  • Good for sponsors - gain a reliable guide of what can be delivered for given cash funding, so more worthwhile to put financing on the table to do a deal
  • Good for insurers and your reputation with them - insurers will be able to allocate their resources more efficiently and so provide more competitive pricing; everyone avoids chasing deals which aren't viable
  • Full or partial buy-outs - Skyval can cleverly analyse and carve out subsets of liabilities which are more affordable for buy-out, to take to market for initial pricing
  • Tried and tested ? Skyval Insure has already been deployed in live cases, providing confidence and insight based on a realistic view of market pricing
  • Avoid false positives and missed opportunities - some advisors rely too heavily on approximations to buy-out pricing, meaning initial indications make a deal look viable, only to collapse when a real price is obtained, wasting time and fees. Or, estimates are over-prudent and you miss out on attractive pricing windows.
  • Let the market come to you - with this new platform, insurers can "price to order" and tell you when they can deliver the deal you are looking for. With insurers looking to boost returns by investing in more esoteric asset classes for their annuity books, you'll be the first to benefit from these new opportunities.
  • Track pricing more accurately - other systems don't have the capability to track pricing accurately, relying on approximations which appear plausible but in practice quickly become out of date vs the market. Skyval allows you to refresh your tracking from time to time with a genuine market view, quickly and cheaply.
  • Execute your flight path ? Skyval will help you achieve your long-term de-risking objectives by identifying successive opportunities for affordable transactions, each moving you closer toward the goal of a fully de-risked balance sheet
  • Upgrade your strategy - even if buy-in or buy-out was never on the agenda, now you can achieve price visibility in days and may be able to incorporate such a transaction as part of your overall strategy for the first time.

Reduce liabilities, manage risk, save cost. To find out more about Skyval's latest offering, please sign up to PwC's webcast on 8 December - but if you need a more urgent briefing then feel free to contact me or your usual PwC pensions advisor.

Raj Mody

Raj Mody

Raj advises corporates, trustees, regulators and government, specialising in helping major FTSE and multinational organisations deal with their pensions challenges. He is a partner at PwC, a Fellow of the Institute of Actuaries and a founding Director of Skyval. - 020 7804 0953 - @PensionsRaj