Clerical Medical's Withdrawal from the defined benefit pensions market - A catalyst for change

Clerical Medical's Withdrawal from the defined benefit pensions market - A catalyst for change

With Clerical Medical deciding to exit the defined benefit pensions market, many affected schemes are now considering their options and what comes next. For some trustees and sponsors, the immediate priority will be finding a replacement. This change also provides a valuable opportunity to step back and consider how a different approach could deliver greater benefits to the scheme, whilst reconsidering the near and longer-term objectives.

For many years, the Guaranteed Pension Contracts (GPCs) offered by Clerical Medical provided a practical solution. They offered simplicity, reduced governance demands and a bundled service covering investments, administration and strategic oversight.

But pension schemes have evolved. Funding positions have improved, buy-out has become a realistic objective for many schemes and the demands placed on trustees have increased significantly. As a result, moving away from a GPC may unlock opportunities that trustees and sponsors did not previously realise were available.

What Have Trustees and Sponsors Been Missing?

The greatest strength of a GPC was also one of its limitations.

By design, many decisions were made within a predefined framework, reducing the burden on trustees. While this provided convenience, it often meant less access to bespoke advice and less opportunity to tailor strategy to the specific needs of the scheme, specifically regarding investment choices.

As schemes move out of GPC arrangements, many trustees are discovering they can benefit from:

• More direct support from specialist advisers.
• Greater visibility of key strategic decisions.
• A governance framework designed around their scheme rather than a standardised solution.
• More opportunities to challenge, review and refine their journey plan.
  
  

A More Tailored Approach

No two pension schemes are the same.

Under a traditional advisory model, actuarial, investment and administration services are tailored to the scheme's circumstances, funding position and long-term objectives.

Rather than fitting the scheme into a pre-existing structure, the support structure is built around the scheme itself. This can result in more informed decision-making and a clearer understanding of the options available to trustees and sponsors.

Better Support for Buy-Out Planning

Many schemes are now significantly closer to buy-out than they were when their GPC arrangements were first established.

Achieving buy-out requires a detailed understanding of:

• Buy-out funding levels.
• Actuarial liabilities and funding risks.
• Hedging strategy and interest rate exposure.
• Asset allocation and insurer pricing considerations.
• Data quality and benefit readiness.

A traditional advisory approach enables these issues to be considered holistically, helping trustees develop a strategy specifically aligned with their chosen end-game objective.

Administration Matters More Than Ever

Administration is often overlooked until it becomes a problem.

As buy-out activity has increased, insurers have placed greater emphasis on scheme data, benefit accuracy and operational readiness. Moving away from a GPC can provide an opportunity to review administration arrangements, improve processes and address historic issues before they become obstacles to a future transaction.

In many cases, strong administration can be just as important as strong funding when preparing for buy-out.

Are There Potential Cost Savings?

For some schemes, there may also be an opportunity to review costs.

Many GPC arrangements continue to hold assets within with-profits funds or legacy investment structures that may carry higher management charges than alternative solutions available today. A review of the investment arrangements can help trustees assess whether the scheme is receiving value for money and whether the current structure remains appropriate for its objectives.

The outcome will vary from scheme to scheme, but the opportunity to reassess costs and value is one that should not be overlooked.

Turning Change into Opportunity

The closure of Clerical Medical's GPC offering marks the end of an era for many schemes. However, it also creates an opportunity to ask an important question:

What could the scheme achieve with advice that is fully tailored to its needs?

For many trustees and sponsors, the answer may include better support, stronger governance, improved administration, a clearer understanding of actuarial and investment risks, and a more effective route to buy-out.

The challenge is not simply finding a replacement for a GPC. It is making the most of the opportunities that become available once the constraints of a bundled arrangement are removed.

Quantum has extensive experience helping schemes transition their defined benefit arrangements and in supporting trustees as they navigate the next stage of their pension journey.