Tools to help reduce - or reshape - scheme liabilities

Hardeep  Tawakley
clock • 2 min read

"The solvency deficit reported by our scheme actuary is much bigger than the company can afford. It's not worth us thinking about buyout now.. is it?"

According to Aon, many schemes may be much closer to reaching buy-out than it first appears. And there are significant merits in considering actions to bridge your buy-out deficit now, rather than waiting.

The deficit bridge within Aon's Risk Analyzer, the group's interactive desktop application, helps to illustrate the potential impacts of simply letting a scheme run on in line with its existing funding and asset strategies.

As a first step, Aon suggests making sure you are looking at the complete picture. This includes analysing:

  • Contributions that are already committed, along with expected asset returns, will help to fill some of the buy-out deficit
  • Member options, such as transfer values or pension increase exchange, can reduce the size of scheme liabilities, and make your scheme easier to secure
  • You could also expect some savings on headline insurance pricing, if you are willing to be flexible.

According to Aon, there are a number of member options available that could either reduce the size of liabilities with the scheme, or reshape liabilities so that they are easier or better value to secure with an insurer.

The group's Risk Analyzer tool allows Aon to clearly illustrate the potential savings interactively by varying the assumed savings and take-up rates from each member option exercise. This helps to prioritise actions from the agreed shortlist based upon financial impact, along with forming an initial strawman proposal for the offer to be made to members.The deficit bridge tool also provides visibility to the savings that could be achieved by optimising insurance strategies.

Coming back to the original question - Aon suggests many may be much closer to being able to afford to buy-out than you thought! Particularly as annuity pricing has improved recently, so there may bea pleasant surprise if the deficit has not been considered lately.

Click here to learn more about bridging your buy-out deficit and how Aon's Risk Analyzer tool can assist you in reshaping liabilities for better value with an insurer.

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