A sponsoring employer decided to close their final salary scheme. The shortfall against the estimated buy-out cost was around £5 million. However, the advisers suggested the trustees shop around and approached another annuity provider. After some research, the trustees identified another product which matched their needs. They were amazed that by shopping around, the alternative product would save them £3 million!
However, this still left a pensions “black hole” of £2 million. The trustees approached the employer who initially paid £1.7 million into the trustee bank account, so that the liability could be settled. Two years later, the member data was 95% complete and the new Independent Trustee suggested, rather than delaying the buy-out any further why not buy-out the known liabilities.
The scheme consultant said that this was not usual. However, the Independent Trustee said it would be better to settle the known liabilities than wait. It was then discovered that a fall in gilt yields and new mortality tables released had nearly doubled the estimated liability. (That’s a further £2 million from the sponsoring employer!)
Here are some valuable lessons that can be learnt from the above.
If you found this blog useful, subscribe to our newsletter here to receive fresh content to your mailbox monthly.