So, if one or more of your clients has a DB scheme, suggest they write, or perhaps get them to instruct you to write, to their trustees and put the arguments for a discretionary increase.
Setting an exceptional example of good corporate behaviour is the Church of England, which made discretionary increases – in excess of guaranteed increases to clergy pensions in payment in each of 2023 and 2024. The total increases – of 10.1 per cent and 6.7 per cent respectively – match CPI inflation as at the preceding September.
One section of British Airways' pension schemes, the Airways Pension Scheme, has given some eligible members a discretionary Increase every year since 2019 and every year of the difference between CPI and the retail price index with a total 2023 pension increase (including discretionary payment) of 12.6 per cent. It is expected this will continue until 2030 when the Office for National Statistics intends to align CPI and RPI.
While schemes were in deficit there was nothing trustees could do but now there is a colossal £425.4bn surplus at the end of January 2024). This money is up for grabs with total assets of £1,395.2bn and total liabilities were £969.8bn. Much of this is being hoovered up by insurer in mega city deals.
Indeed, the actuary firm LCP predicts for 2024 volumes of buy-ins/buyouts to five insurance companies will set yet another record of more than £50bn in 2024. Five large companies control 90 per cent of the market in a dangerous over-concentration of assets – their only motive is profit.
Buyouts benefit insurers
One of the little understood consequences of buyouts is that hundreds and thousands of DB pensioners may lose out on cost of living top-up discretionary payments as they are usually lost for ever once the scheme is closed and there are no longer any trustees.
The rationale is to protect members from falling into the well-run, well-funded Pension Protection Fund, the pensions lifeboat, which William McGrath, chief executive, C-Suite Pension Strategies, says is an increasingly remote risk: “It has been struggling in recent years to find new joiners as schemes are too well-funded even when their sponsor has failed. It has £11bn in assets above what it needs at present, showing what a profitable business life insurance is.”
The whole buyout process to insurers is far from transparent. McGrath says: “What the difference in value to members actually is and how it is falling over time is not something actuaries actually provide to members. Nobody likes to ask.”
He adds: “In exchange for saving members from a contingent risk, which they know probably does not exist, the trade-off made by actuaries is the loss of existing discretionary benefits and the complete loss of upside. Bottom of the range accrued benefits is enough.
