Vicky Casebourne: There is an alternative solution for well-funded schemes
Van Lanschot Kempen has developed a defined benefit (DB) run-on solution in a bid to benefit members, employees and sponsors.
The fiduciary manager's FM+ solution - developed in co-operation with C-Suite Pension Strategies - aims to create a "window of opportunity" for surplus beyond a buyout measure to be further built up and regularly released for the benefit of pensioners, current employees and the sponsor, with the support of the trustees.
In a video released today (30 October), Van Lanschot Kempen UK head of institutional relations Vicky Casebourne said that, while buyout and consolidators offering a bridge to buyout would always be the "gold standard" for most schemes, there was a growing appetite for a few, predominantly those well-funded schemes with a paternalistic sponsor, to consider immediate alternatives if the risk to both members and sponsor was not meaningfully increased.
She explained: "We have developed a solution called FM+, which aims to limit additional risk to members with a guarantee; and will make use of additional capital and distribute surplus annually."
Casebourne said such a run-on solution could offer a number of benefits - including giving DB pensioners the opportunity to have the same benefits as other uncapped members and allowing for a potential redistribution of DB surplus to defined contribution (DC) members, so-called DC contribution top ups.
She said it could also provide broader societal and environmental benefits as the retained surplus could be invested impactfully, integrating clear ESG metrics and aligning with the Mansion House reforms.
Casebourne said: "While buyout will and should remain the gold standard for the majority of schemes, for those who are well funded and can productively run on until a later date when buyout can be an option, there is an alternative solution which also has the added benefit of a positive impact on a sustainable future."
In a separate video, UK head of strategic clients Iain Brown agreed: "More and more DB pension schemes are finding themselves in the wonderful position of being well-funded and able to afford an insurance buyout transaction."
He said this improvement in funding would open up a number of options for some schemes with strong covenants and sponsors willing to run on productively until a later buyout.
Brown said Van Lanschot Kempen's FM+ was one such option - creating a window of opportunity of potentially ten years or more.
But Brown noted FM+ was not an alternative to buyout. He explained: "It is purposefully a longer journey towards buyout for a well-funded scheme, seeking to make the most of the opportunity of running on for those schemes in the right circumstances.
"FM+ supports longer term thinking by providing all the usual benefits of fiduciary management, along with a carefully designed and robust investment strategy, combined with additional and separately arranged insurance guarantees throughout that new investment time horizon.
"With insurance guarantees offering protection against sponsor defaults and falling funding levels, trustees and sponsors can feel more comfortable about typical short-term risk concerns and more confident in running on their scheme in a productive way for all its stakeholders."
