Peter Maher considers the various strategies firms can employ to help them manage their pension liabilities.
Although some firms have closed their final salary pension schemes to new entrants, deficits persist. And while the strength of equity investment over the long term is well reported, the inevitable volatility of the stock market has an immediate effect which impacts on the size of a firm’s pension deficit.
This uncertainty is clearly unwelcome, so many businesses wisely look to a variety of strategies to help smooth this volatility, and, in so doing, demonstrate to the outside world that they are managing the situation.
Leveraged buy-out bonds can be particularly helpful. The use of such vehicles allows the employer to crystallise the full buy-out liability by transferring all of the assets of the scheme to an insurance company which will secure deferred annuities for scheme members. The deficit that exists between the value of assets transferred and the cost of purchasing
