Hilary Salt Member Trustee Network Conference 2013.

Hilary Salt

Member Trustee Network

Conference 2013

Q: What is the aim of a pension scheme?

To pay the right amount of money, to the right people,

at the right time

A:

Q: What do pension scheme assets need to do?

A:

Generate a stream of income to pay

pensions as they fall due …..

…. and retain value sufficiently so that

when a scheme is in run off, assets can be

sold to pay the last cohort of pensioners

UK Equity Returns

12/1/1

993

12/1/1

994

12/1/1

995

12/1/1

996

12/1/1

997

12/1/1

998

12/1/1

999

12/1/2

000

12/1/2

001

12/1/2

002

12/1/2

003

12/1/2

004

12/1/2

005

12/1/2

006

12/1/2

007

12/1/2

008

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009

12/1/2

010

12/1/2

011

12/1/2

0120

1000

2000

3000

4000

5000

6000

7000

FTSE All Share Index Rebased FTSE All Share Total return RPI Linked Return

Proposed Methodology

• Focus on future income streams correct

• Generating real income streams should be a key investment strategy

− This does not mean a bond strategy

− Benefit outgo should drive investment strategy (not the other way around)

• Pensions are long term vehicles and valuations should be a periodic assessment of whether we are going roughly in the right direction

Barriers to the Proposed Methodology

• Can we play the ball from where it is?

• Valuations used for all the wrong things

− Accounting valuations

− Funding valuations

− Buy-out valuation – but PPF to cover insolvency

Schemes in Wind Down

• Schemes closed to future accrual using ‘flight plans’

• As funding position improves, move assets into bonds to ‘reduce risk’

• What is the meaning of risk for a pension scheme?

− Risk of falling funding position measured against a bond based valuation measure

− Risk of not meeting the benefits (or the benefit expectation)

• Problems with DC ‘reckless’ caution, funding for buy-out

Things to Watch For

The attitude of the Pensions RegulatorA lucky pair?

Defined ambition