I have read Charles Cowlings letter very carefully (The Actuary, December 2015, bit.ly/1T7XqEa) and, in the spirit of promoting harmony, I would like to highlight a sentence in it with which I agree.
(The Actuary, December 2015, bit.ly/1T7XqEa) and, in the spirit of promoting harmony, I would like to highlight a sentence in it with which I agree. He says:
"If we never had to worry about companies going bust, we would not need to be so concerned about deficits and short-term volatilities."
Since the creation of the Pension Protection Fund (PPF) in April 2005, the worst-case scenario for a pension scheme whose sponsor has gone bust is entry into the PPF. In the PPF, members receive sufficient benefits to satisfy the EU and the UK government that their interests have been protected. The PPF is a trust-based scheme, with many sponsors of impeccable aggregate covenant - ultimately, these are all the employers sponsoring all other trust schemes.
Given that benefits are either provided in a trust sponsored by the originating employer or from a trust sponsored by all other employers, please can we not be so concerned with (solvency) deficits and short-term volatilities? And instead put together a prudent plan for the cashflows of the trust?
Leaving aside the valuation and asset liability management black boxes and taking a direct look at the cashflows can be very revealing. A cashflow analysis comparing contributions and the income from the assets with the outgo on benefits is a great place to start the construction of a long-term funding and investment plan.
Derek Benstead, Fellow
7 December 2015
