Investing for DB pension schemes

[Dod101]

An interesting item in the FT this morning on the above.

As everyone knows, virtually all DB pension schemes are closed to new members and have been for some years. All of this is obvious when you think about but I had not because it seemed so irrelevant for me (which it is)

Anyway, closed funds obviously have a finite time horizon, servicing only existing members and are therefore no longer what the author calls indefinite intergenerational savings vehicles. They have now become more akin to annuities. The result is that they now have foreshortened time horizons which make it harder to recover from the impact of poor investments, which in turn will significantly curtail (or should anyway) their appetite for risk.

The other point is that the corporate sponsor's (that is the companies themselves) risk profiles were asymmetric, the company is responsible for all of the shortfalls and losses but have no practical access to any upside surplus until the last pensioner has died (except I suppose by taking a contribution holiday)

The result is a huge change in the asset allocation of these closed funds. For instance there used to be the 'cult of the equity' where pension schemes held over 50% of their assets in equities, down now to about 4%, and the rise in bond allocation has gone from less than 20% to 72% in the last 20 years or so. This quest for nil risk means that any sensible set of pension scheme trustees will try to hedge any risk to the capital value of the bond and when things go wrong.......well we know the rest. You can see why the trustees might want to hand over the scheme to an insurer.

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

[dealtn]

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

A stand alone pension fund operating as you describe last week will be asset/liability hedged and face no derivative margin calls or liquidity constraints.

[Dod101]

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

A stand alone pension fund operating as you describe last week will be asset/liability hedged and face no derivative margin calls or liquidity constraints.

Ok Good tell me more. I know very little about this but would like to understand.

Dod

[BullDog]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

[dealtn]

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

A stand alone pension fund operating as you describe last week will be asset/liability hedged and face no derivative margin calls or liquidity constraints.

Ok Good tell me more. I know very little about this but would like to understand.

Dod

Whats to say? You describe a hedged book with majority owned bonds. Those bonds (provided the issuer doesn't fail) meet the obligations as they fall due. You can't see anyone more at risk than that?

[Dod101]

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

A stand alone pension fund operating as you describe last week will be asset/liability hedged and face no derivative margin calls or liquidity constraints.

Ok Good tell me more. I know very little about this but would like to understand.

Dod

Whats to say? You describe a hedged book with majority owned bonds. Those bonds (provided the issuer doesn't fail) meet the obligations as they fall due. You can't see anyone more at risk than that?

The author does not mention derivatives that is true, and in fairness to him he goes on to say that the strong bias by pension schemes away from equities has reduced funding for homegrown centres of research and innovation reduced available domestic capital for infrastructure and so on, rather than dwell on the risks and the causes of these risks

Dod

[dealtn]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

[Dod101]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

In my naivety, I thought that a company selling a closed DB pension scheme is usually doing so at least to remove the potential liability of having to fund a shortfall and getting the scheme off its books. I doubt very much that all the schemes that say L & G takes on are not fully secured and funded. To turn your question back on you, why then would L & G buy them? They are taking them on because they hope over the remaining lifetime of the schemes that they can make some money from them by pooling the assets with others and making savings in the costs of admin if nothing else.

Dod

[Dod101]

Standalone pension schemes must have been most at risk this last week, because of their asset allocation and it is easy to see why with that background.

Dod

A stand alone pension fund operating as you describe last week will be asset/liability hedged and face no derivative margin calls or liquidity constraints.

Ok Good tell me more. I know very little about this but would like to understand.

Dod

Whats to say? You describe a hedged book with majority owned bonds. Those bonds (provided the issuer doesn't fail) meet the obligations as they fall due. You can't see anyone more at risk than that?

So I do not understand then what all the fuss was about last week. can you enlighten me please?

Dod

[BullDog]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

Well unless the actuaries are telling lies, the trustees are believing them and publishing the funding levels of the schemes to the members, then you're wrong. Both final salary plans I have continue to report funding levels in excess of 100% of liability each year. What I didn't understand, along with many others I guess, is that these LDI funny money instruments that are reported to the members quite routinely are as risky as they turned out to be. I would go out on a limb and say I suspect that the lay member employee trustees didn't fully understand either. Perhaps.

Why do L&G buy them? I can't answer for them. Presumably they see a long term income stream for the shareholders from such business.

[BullDog]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

In my naivety, I thought that a company selling a closed DB pension scheme is usually doing so at least to remove the potential liability of having to fund a shortfall and getting the scheme off its books. I doubt very much that all the schemes that say L & G takes on are not fully secured and funded. To turn your question back on you, why then would L & G buy them? They are taking them on because they hope over the remaining lifetime of the schemes that they can make some money from them by pooling the assets with others and making savings in the costs of admin if nothing else.

Dod

I can obviously only describe the two DB plans I am a member of, both with L&G. Both employer companies continued until quite recently to make considerable contributions to the DB plans until they were more than 100% funded for future liabilities. One of them as recently as last year made almost a 1/4 billion GBP payment into the DB plan. Both plans now report quite a bit over 100% funding in their latest reports. So at least short term, I'd have thought they were now off the hook for further contribution. I would think that all this stuff is negotiated in fine detail between L&G, the DB pension trustees and the employers before a plan is taken on by L&G.

[Alaric]

So I do not understand then what all the fuss was about last week. can you enlighten me please?

The problem seems to have been that these schemes took out derivative contracts which protected them if interest rates fell. Falling interest rates have the side effect that the values placed on the promises to pay out pensions in the form of annuities will increase. That can have an effect on the sponsoring Company's accounts given the way the accounting rules ae written.

It appears they didn't take account of the risk that if interest rates rose sharply, always a possible political risk, that they would be crippled by cash demands on their derivatives.

Funded defined benefit schemes have been around a long time, over a hundred years perhaps. In that time period, Gilt yields have been 4% and I dare say occasionally increased to 5% over a short period. The pension schemes will have serenely sailed through without precipitaing emergency action by the Bank of England or Government. That's until now.

One solution of sorts would be to relax the rules on reporting pension gains or losses. After all if a Company buys another Company for far more than it's worth, that gets covered up as "goodwill". For example you could run a year by year projection of the outgo and a year by year projection of the asset income. if the scheme is in deficit the outgo will exceed the income. You then discount the shortfalls, not at a Gilt rate, but at some rate the Company might use for internal project assessment.

[Dod101]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

In my naivety, I thought that a company selling a closed DB pension scheme is usually doing so at least to remove the potential liability of having to fund a shortfall and getting the scheme off its books. I doubt very much that all the schemes that say L & G takes on are not fully secured and funded. To turn your question back on you, why then would L & G buy them? They are taking them on because they hope over the remaining lifetime of the schemes that they can make some money from them by pooling the assets with others and making savings in the costs of admin if nothing else.

Dod

I can obviously only describe the two DB plans I am a member of, both with L&G. Both employer companies continued until quite recently to make considerable contributions to the DB plans until they were more than 100% funded for future liabilities. One of them as recently as last year made almost a 1/4 billion GBP payment into the DB plan. Both plans now report quite a bit over 100% funding in their latest reports. So at least short term, I'd have thought they were now off the hook for further contribution. I would think that all this stuff is negotiated in fine detail between L&G, the DB pension trustees and the employers before a plan is taken on by L&G.

Thanks. I do not have any idea what sort of contract there is between the original company sponsor and say L & G. It seems that if L & G say, is not happy with the funding of the scheme they are buying that further contributions may be required, judging by your comments. I guess that makes sense. I wonder though, if a scheme is actuarially fully funded if such a provision would appear? I would have thought that that would allow the sponsor to be off the hook but I realise that I know very little about this sort of thing.

What you are saying is almost as if L & G are simply replacing the original pension scheme trustees. Interesting.

Dod

[XFool]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

Well unless the actuaries are telling lies, the trustees are believing them and publishing the funding levels of the schemes to the members, then you're wrong. Both final salary plans I have continue to report funding levels in excess of 100% of liability each year. What I didn't understand, along with many others I guess, is that these LDI funny money instruments that are reported to the members quite routinely are as risky as they turned out to be. I would go out on a limb and say I suspect that the lay member employee trustees didn't fully understand either. Perhaps.

Oh dear! This is all very confusing - but then it's pensions. I confess I never really understood all that LDI stuff wrt pensions. All far above my pay grade.

Ironically, now, wasn't it supposed to all be about safety and stability - following the equities crash after the Dotcom bubble? Shares were too "risky", too "volatile". But why that should even matter to a mature pension fund, unless it is in final rundown, I don't know. Anyway, LDI, was supposed to have that all sorted. Now we are told they were the recent risk factor and had to be bailed out by the BoE. Why were derivatives even being used? Why were they even necessary? Are they necessary to LDI? Why didn't they just stick to bonds, equity and property? Perhaps it would have been safer all along.

Does anyone understand what is going on with pension funds?

[BullDog]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

In my naivety, I thought that a company selling a closed DB pension scheme is usually doing so at least to remove the potential liability of having to fund a shortfall and getting the scheme off its books. I doubt very much that all the schemes that say L & G takes on are not fully secured and funded. To turn your question back on you, why then would L & G buy them? They are taking them on because they hope over the remaining lifetime of the schemes that they can make some money from them by pooling the assets with others and making savings in the costs of admin if nothing else.

Dod

I can obviously only describe the two DB plans I am a member of, both with L&G. Both employer companies continued until quite recently to make considerable contributions to the DB plans until they were more than 100% funded for future liabilities. One of them as recently as last year made almost a 1/4 billion GBP payment into the DB plan. Both plans now report quite a bit over 100% funding in their latest reports. So at least short term, I'd have thought they were now off the hook for further contribution. I would think that all this stuff is negotiated in fine detail between L&G, the DB pension trustees and the employers before a plan is taken on by L&G.

Thanks. I do not have any idea what sort of contract there is between the original company sponsor and say L & G. It seems that if L & G say, is not happy with the funding of the scheme they are buying that further contributions may be required, judging by your comments. I guess that makes sense. I wonder though, if a scheme is actuarially fully funded if such a provision would appear? I would have thought that that would allow the sponsor to be off the hook but I realise that I know very little about this sort of thing.

What you are saying is almost as if L & G are simply replacing the original pension scheme trustees. Interesting.

Dod

No. The trustees are entirely separate and independent of the employer company and the plan managers (L&G). Effectively, the employer company completely outsources the future management of the assets within the DB scheme. They no longer run an in house pensions department. I don't know details of the agreement between L&G and the employer company. It appears to me that if immediate liquidity is required when the derivatives are failing, and it exceeds a certain threshold, then the employer company has to cough up. But it's really beyond my pay grade beyond reading and believing the trustees when they tell me that in excess of plan liabilities are fully funded.

[Dod101]

So I do not understand then what all the fuss was about last week. can you enlighten me please?

The problem seems to have been that these schemes took out derivative contracts which protected them if interest rates fell. Falling interest rates have the side effect that the values placed on the promises to pay out pensions in the form of annuities will increase. That can have an effect on the sponsoring Company's accounts given the way the accounting rules ae written.

It appears they didn't take account of the risk that if interest rates rose sharply, always a possible political risk, that they would be crippled by cash demands on their derivatives.

Funded defined benefit schemes have been around a long time, over a hundred years perhaps. In that time period, Gilt yields have been 4% and I dare say occasionally increased to 5% over a short period. The pension schemes will have serenely sailed through without precipitaing emergency action by the Bank of England or Government. That's until now.

One solution of sorts would be to relax the rules on reporting pension gains or losses. After all if a Company buys another Company for far more than it's worth, that gets covered up as "goodwill". For example you could run a year by year projection of the outgo and a year by year projection of the asset income. if the scheme is in deficit the outgo will exceed the income. You then discount the shortfalls, not at a Gilt rate, but at some rate the Company might use for internal project assessment.

Thanks. It used to amuse (or bemuse?) me the way that pension schemes calculate their liabilities because of course they are only as good as the parameters that an actuary feeds in to the model. It does not take much in a big scheme for a small change in these to cause a very high change in the outcome, so although these valuations are treated with great respect, almost reverence, they are not I think necessarily all that accurate, and yet empires can be lost because of them.

Re your comment about derivatives, what you have said is mor or less what I was trying to say early on in this thread but dealtn more or less dismissed that.

Could an actuary in the house help out?

Dod

[Dod101]

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

In my naivety, I thought that a company selling a closed DB pension scheme is usually doing so at least to remove the potential liability of having to fund a shortfall and getting the scheme off its books. I doubt very much that all the schemes that say L & G takes on are not fully secured and funded. To turn your question back on you, why then would L & G buy them? They are taking them on because they hope over the remaining lifetime of the schemes that they can make some money from them by pooling the assets with others and making savings in the costs of admin if nothing else.

Dod

I can obviously only describe the two DB plans I am a member of, both with L&G. Both employer companies continued until quite recently to make considerable contributions to the DB plans until they were more than 100% funded for future liabilities. One of them as recently as last year made almost a 1/4 billion GBP payment into the DB plan. Both plans now report quite a bit over 100% funding in their latest reports. So at least short term, I'd have thought they were now off the hook for further contribution. I would think that all this stuff is negotiated in fine detail between L&G, the DB pension trustees and the employers before a plan is taken on by L&G.

Thanks. I do not have any idea what sort of contract there is between the original company sponsor and say L & G. It seems that if L & G say, is not happy with the funding of the scheme they are buying that further contributions may be required, judging by your comments. I guess that makes sense. I wonder though, if a scheme is actuarially fully funded if such a provision would appear? I would have thought that that would allow the sponsor to be off the hook but I realise that I know very little about this sort of thing.

What you are saying is almost as if L & G are simply replacing the original pension scheme trustees. Interesting.

Dod

No. The trustees are entirely separate and independent of the employer company and the plan managers (L&G). Effectively, the employer company completely outsources the future management of the assets within the DB scheme. They no longer run an in house pensions department. I don't know details of the agreement between L&G and the employer company. It appears to me that if immediate liquidity is required when the derivatives are failing, and it exceeds a certain threshold, then the employer company has to cough up. But it's really beyond my pay grade beyond reading and believing the trustees when they tell me that in excess of plan liabilities are fully funded.

Thanks. You are helping me to tease out how these things work. So at least in your case L & G are as you say, simply the plan managers. I wonder how far there responsibility stretches?

Dod

[Dod101]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

Well unless the actuaries are telling lies, the trustees are believing them and publishing the funding levels of the schemes to the members, then you're wrong. Both final salary plans I have continue to report funding levels in excess of 100% of liability each year. What I didn't understand, along with many others I guess, is that these LDI funny money instruments that are reported to the members quite routinely are as risky as they turned out to be. I would go out on a limb and say I suspect that the lay member employee trustees didn't fully understand either. Perhaps.

Oh dear! This is all very confusing - but then it's pensions. I confess I never really understood all that LDI stuff wrt pensions. All far above my pay grade.

Ironically, now, wasn't it supposed to all be about safety and stability - following the equities crash after the Dotcom bubble? Shares were too "risky", too "volatile". But why that should even matter to a mature pension fund, unless it is in final rundown, I don't know. Anyway, LDI, was supposed to have that all sorted. Now we are told they were the recent risk factor and had to be bailed out by the BoE. Why were derivatives even being used? Why were they even necessary? Are they necessary to LDI? Why didn't they just stick to bonds, equity and property? Perhaps it would have been safer all along.

Does anyone understand what is going on with pension funds?

Your comments pretty well reflect my own in this matter so at least I am not alone.

Dod

[BullDog]

And with my main source of income now two DB pensions which are now effectively group annuities with L&G, I was shocked to discover that there was anything more than slight risk involved in the management of them. I am left wondering if the pension trustees, especially employee lay trustees, really fully understand the part the funny money derivatives are now playing in formerly securely funded final salary pension schemes. In practice, the members entitlement to the pensions we now enjoy is deferred salary. The pension entitlements are paid for during employment. The latest reports from the pension trustees state that these LDI instruments that seem to have almost blown up last week are used in both my DB pension schemes.

Why would your company sell a fully secured and funded final salary pension scheme. More pertinently why would L&G (or others) buy them?

I suspect the former sold to the latter because they weren't as secure and funded as you believe. That's what creates a market for companies like L&G, they accept the risk for a price.

Well unless the actuaries are telling lies, the trustees are believing them and publishing the funding levels of the schemes to the members, then you're wrong. Both final salary plans I have continue to report funding levels in excess of 100% of liability each year. What I didn't understand, along with many others I guess, is that these LDI funny money instruments that are reported to the members quite routinely are as risky as they turned out to be. I would go out on a limb and say I suspect that the lay member employee trustees didn't fully understand either. Perhaps.

Oh dear! This is all very confusing - but then it's pensions. I confess I never really understood all that LDI stuff wrt pensions. All far above my pay grade.

Ironically, now, wasn't it supposed to all be about safety and stability - following the equities crash after the Dotcom bubble? Shares were too "risky", too "volatile". But why that should even matter to a mature pension fund, unless it is in final rundown, I don't know. Anyway, LDI, was supposed to have that all sorted. Now we are told they were the recent risk factor and had to be bailed out by the BoE. Why were derivatives even being used? Why were they even necessary? Are they necessary to LDI? Why didn't they just stick to bonds, equity and property? Perhaps it would have been safer all along.

Does anyone understand what is going on with pension funds?

They are excellent questions. I can't answer them. The pension plans I am a member of both ran perfectly well for maybe 70 years without recourse to funny money derivatives. I suspect the introduction of such instruments has a lot to do with L&G making as much money from as few real assets as they can get away with. When the plans were run in house, there simply wasn't any need to make money beyond covering liabilities. The portfolios were bonds, property and shares. It's another layer of cost that the fund has to pay as well as paying pensioners.

[Alaric]

[ I would have thought that that would allow the sponsor to be off the hook but I realise that I know very little about this sort of thing.

What you are saying is almost as if L & G are simply replacing the original pension scheme trustees. Interesting.

L&G sometimes talk in terms of risk transfer. That's defining who is on the hook if events adverse to the funding of the scheme occur. One possible partial transfer of risk is longevity where L&G pick that up, but the scheme handles investment.

You could have a scheme where L&G take all the risks and all the profits, but the Trustees remain in place as a legal device. There shouldn't be any need for the Company to make contributions in those circumstances.

L&G are experts in this sort of thing, or at least we thought so. They probably aren't going to give away too many commercial secrets if they don't have to.