Pension Playpen - TAS300 v2 maths and governance resets pension strategies (3).pptx

C-Suite Pension PlayPen presentation

1. TAS300 V2 : The Maths and the Governance Resets Pension Strategies 18 June 2024

2. With One Question Improve Your Pension (and that of millions more) Dear Trustees and Sponsor, “Are you having practitioner advice on Technical Actuarial Standard 300 Version 2 Section 5 yet?” 1

3. Public Policy Has Changed : Alternatives to DB Derisking Encouraged The Chancellor and DWP Minister of State wrote to CEOs of TPR and PRA in December 2023 following the Autumn Statement: “Encouraging alternatives to DB de-risking and buyout, where schemes are well-funded with strong employer covenant – making their assets work harder and enabling continued investment in a broad range of assets, through clearer funding standards in Regulations, a Code of practice and guidance, and making it easier to share investment returns between sponsors and scheme members.” 2

4. Public Policy Has Changed : TAS300 V2 as the Trigger FRC: Technical Actuarial Standard 300 Version 2 3

5. Surpluses collapse the case for bulk transfers Our modelling gives you clear risk-benefit analytics to back “run on” strategies Our partners can implement modern, long-term strategies with “productive asset” allocations generating sustainable surpluses End the Risk Transfer Industry’s cosy Endgame consensus All stakeholders benefit from a modernised plan and surplus sharing Run On 4 Good replaces Run Away ASAP Aligns with Government policy and corporate and pension fund ESG commitments to past and present employees and the environment Corporates and  employees can target their DC contributions to be DB surplus funded C- Suiteps Analytics Model and allocate surpluses Assess what PPF insurance provides FM+ Fiduciary Management: cash flow driven with third party guarantees DSUs Discretionary Step Ups provide authorised additional pension payments https://www.c-suiteps.com/run-on-4-good.html 4

6. What is the gap in value to members between FSCS and PPF cover? 5

7. Risk Benefit Analysis Assume 0.5% per annum chance of corporate failure 6 Scheme Scenarios Full pension (does not fall into PPF) Minimum pension (fall into PPF now) *Probabilistic PPF pension PV base scheme pension 21,402 19,251 **21,314 PV scheme pension + 4x 10% DSUs 22,534 19,251 22,378 PV scheme pension 5% increase now 22,472 19,251 22,366 Inflation 3.5%; Discount rate 4% Illustrative figures on £1000 pension for 65 year old member *Probabilistic PPF pension: PV of pension looking over 25 years, factoring in probabilities of falling into PPF for each year ** 1% chance per annum of corporate failure: probabilistic PPF pension 21,231

8. Risk Benefit Analysis 7 Benefit Analysis: Allocating surpluses: An illustrative table DB Scheme Numbers Illustration £’m   Assets market value 1000 10 year asset management run on deals Liabilities (gilts +50bp) 1000 Actuarial assumptions set long term Pensions payable (1/20 liabilities) 50   Employer / Employee DC contributions 20 15m employer, 5m employee 2% delta on returns targeted v liability calculation 20   Allocation to be negotiated:     0.5 / 1% to members 5-10 10% to 20% additional pension payment 0.5 % to employees 0-10 Can stop contributing or add sum (+/- 5m) Company to reduce DC contributions 5-10 Can be flexible. Direct repayment possible Sponsor surety guarantee : Buffer 50 Permitted use Cost @ 1% 0.5 At corporate funding cost

9. Hope v Independent Trustee Services : 2009 Para 106 / 119 “There is no single all-purpose answer to the question whether the PPF is a relevant consideration……. It all depends on the context and the purpose” “…..the PPF is in certain contexts a legitimate matter for trustees to take into account…..” The Judge wanted to avoid “the dangers of invoking public policy in relation to a situation which is not before the Court”. Position re-iterated in Brass-v-Goldstone 2023. A probabilistic risk assessment must look at relevant information. 8

10.  Good Governance. What Trustees Should Do Next Complete the risk–benefit analyses as required by TAS300 V2 Assess the cost to the scheme of derisk and risk transfer and life insurer re-risking process. Look at “Run On 4 Good” as an alternative. New long-term investment strategy (FM+) Consider guarantees and insurance products to address trustees and sponsor remaining concerns. Surplus allocation between past and present employees and the sponsor. Governance processes update to increase efficiency. Draft new framework agreement to discuss with sponsor. 9

11.  Good Governance. What the Sponsor Should Do Next Financial / accounting risk-benefit assessment. Align corporate governance (S172 Statements) and ESG commitments with pension funding. Shareholder value: ESG / equity / debt rating impact of pensions considered. Cost / governance / hassle / regret risk views of pensions schemes re-addressed. Legacy problem or valued opportunity. Draft new framework agreement to discuss with trustees. Use C- Suiteps Analytics approach to modelling. 10

12.  What All Stakeholders Should Do Next: Back “Run On 4 Good” Shareholders (led by ESG / impact funds); stockbrokers and IFAs should all encourage “run on”. Economic boost from pension fund money kept in range of productive assets for longer: Surpluses recycled into current pension provision Confidence boosted shift in balance of buyers and sellers: Investment in London Capital Market with more DB and DC scheme investment available. Current pressure to sell illiquid assets addressed. Professionals can back a mindset on corporate Boards towards pension provision. 11

13. C- Suiteps Analytics : Substance for Good Governance 12

14. Conclusions TAS300 Version 2 Section 5 is part of a changed public policy. A risk-benefit analysis needed highlights major gaps in actuarial work. The mathematical basis for the £50 billion a year risk transfer market was flimsy. Surpluses collapse the case. Members can ask one question which ensures trustees and actuarial consultants appreciate their best interests and see discretion as a power in the Rules to use collaboratively.  Renewed market confidence follows. Asset managers can provide products more attuned to run on strategies (Ref FM+) and insurers can cover residual risks. TAS300 V2 : Capable of bringing great improvements to pension provision 13

15. Members/Employees:  With one question improve your pension “Are you having actuarial advice on TAS300 V2 Section 5 yet?” Yes: Over to the maths, governance and allocation of surpluses. No: So no risk transfers then. And investment returns targeted must in due course mean there are surpluses to allocate. TAS300 V2: An endgame for the endgame 14