Just Group’s business update for 2018 is now published. Shares climbed on the back of continued growth in Defined Benefit De-risking (“DB”) sales.
I don’t know what genius thought up the term ‘de risking’.
It’s not really de-risking when your pension fund, which could have been invested in reasonably safe assets such as gilts, is piled into an equity release portfolio, or into some leveraged ground rent scheme (more later on that).
The chart above shows the spread on a buy in (or buyout) transaction relative to gilts. A buyout is when the whole exposure of a company pension scheme is transferred from the sponsoring company to the buyout company (a buy in is when the economic , but not the legal risk is transferred). If the spread is greater than gilts, it means the scheme benefits from the transfer, i.e. the yield promised under the buyout is greater than the yield that the government promises or pledges when you buy a gilt.
So buyouts currently look like a good deal. However, note the word ‘promise’. The transaction only takes place because the buyout company will be investing in assets somewhat riskier than gilts, i.e. equity release mortgages, leveraged ground rent scheme etc., so how likely will the promise be kept.
Did anyone ask the pensioners about what their pension assets were invested in? I have been making extensive enquiries about this, but no one seems to know.