The challenge of operating a defined benefit pension scheme is often as much about risk and uncertainty as the size of liabilities.
A vast range of factors affect the funding levels in a pension scheme. They can often be macro-economic issues that are outside the control of the employer or trustees, and quite unpredictable over the longer term. Nonetheless, businesses are increasingly looking for certitude in this area, with plans for de-risking their pension arrangements. Plans often include:
- amending benefits where possible
- changing investment strategies
- buying in insurance policies and/or buying out benefits to the insurer, and/or
- encouraging members to give up certain benefits or transfer their rights elsewhere in return for an enhanced benefit.
These options and any other de-risking proposals require careful legal analysis. Arc Pensions Law can help determine which options work for you and help to manage the process, ensuring that any risks are appropriately identified and dealt with. Understanding the benefits in the scheme is a fundamental form of de-risking. Assessment in this area and engagement with trustees is known as ‘safe settlement’, and highly important for any employer trying to keep control of risk and uncertainty. Our expertise in this area is discussed in more detail here.