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    Home » The Dangers of Defaulting to Fast Track

    The Dangers of Defaulting to Fast Track

    Features 16 July 2025David HamiltonBy David Hamilton
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    Fast track… sounds appealing, doesn’t it? What trustee board, overloaded with governance documents and new valuation requirements, wouldn’t be attracted to an option that promises to save time and reduces enquiries about their work? But a name can be deceptive, and hundreds of DB arrangements could be about to sleepwalk into adding a material and unnecessary financial burden on their sponsoring employers.

    For the majority of schemes, given the positive funding news in recent years, it will probably be perfectly sensible to head straight for fast track. They are well funded and in a low-risk investment strategy already, or so close as to make minimal difference, so they meet the criteria without even trying. For them it’s a simple case of ticking the relevant boxes and away you go.

    At the other end of the scale, some know that they won’t have the option to consider fast track. Their recovery plan is too long to qualify, or they are reliant on (or committed to) a higher risk investment strategy.

    For a significant number of schemes in between, the position is rather more complicated. Nevertheless, the temptation to reach blindly for the ‘quick and easy’ option is high, particularly for smaller schemes. This could result in requests for contributions from sponsors that are not strictly required, and lower returning investment strategies being implemented.

    This, in turn, has the potential consequence of slowing the path to buyout, leading to additional running costs or potentially even preventing discretionary benefits being awarded to members.

    Let’s look at this another way. Suppose instead of ‘bespoke’ and ‘fast track’ these were described as the Regulator’s ‘basic’ or ‘premium’ approval service. Essentially the Regulator is saying that if you’re willing to pay a bit more money into your scheme and take a less risky approach then they will ask you fewer questions and expedite your valuation signoff. Fair enough, but the different labelling would, I suspect, mean many more schemes would default their discussions to the ‘basic’ service. Crucially, they would also ask how much it costs to upgrade to the ‘premium’ service before rushing towards that option.

    Let’s just take one simple example based on a recent case. The trustees were historically funding on a ‘gilts + 1%’ approach, with a diversified investment portfolio hedging all of their key investment risks. Their funding had improved so they would have a small surplus on their old valuation basis but the temptation was strong – let’s just go fast track so that it’s all a bit easier.

    So, the numbers were run accordingly, including the required expense reserve. Amend the discount rate tweak a few other areas for fast track compliance and suddenly their liabilities were 4% higher. Just like that, the surplus had been eliminated and a request was going to the sponsor for additional money. I suspect you can picture the scene in the boardroom:

    Chair of Trustees – “We need more money into the scheme.”

    Finance Director (Employer) – “What? Why? I thought the scheme was in surplus?”

    In this instance, the diplomatic, if not entirely correct, response given is: “The Regulator’s new funding regime required us to add more prudence,” eliciting the inevitable grumble from the other side of the table. But what if the Trustee had said, “We just decided to opt for the Regulator’s premium service so that we could make the reporting a bit easier. We didn’t think you’d mind, and it means the Scheme will be even more secure”? I suspect the Employer’s response in that scenario, after battling through years of deficit contributions, may have been rather more challenging!

    There is of course a balance to be struck. No one can deny that there will be advisory costs associated with the additional reporting for bespoke submissions. But how many tens (or even hundreds) of thousands of pounds is it worth sponsors paying to avoid that?

    And do you really expect a lot of engagement once you’ve submitted the new Statement of Strategy summary document to the Regulator if you can describe a reasonable approach? I suspect that some lay trustees may quake in fear at the thought of being summoned into the presence of TPR, the almighty Wizard(s) of Brighton. However, those who have seen behind the curtain and understand the Regulator is juggling piles of casework, often with much larger schemes needing its attention, may be somewhat more relaxed. As long as they have been through a reasonable process, of course. After all, they probably already know they’ll have a stronger, and more supportive, employer to work through it with them.

    And remember, much of the ‘extra work’ that you will be reporting on for bespoke cases is still expected to be part of the trustees’ process (proportionate assessment of the employer covenant etc.). It’s just that it isn’t disclosed in the fast track scenario. Sure, there will be some trustees who decide to take short cuts (if no one’s marking the homework then will you really do it to the same standard?) but this should be actively decided on as part of the process. Otherwise, they face exposure if, heaven forbid, something major does go wrong or if the Regulator just happens to do one of its spot checks.

    So, if you are one of those schemes who genuinely have a decision to make on which route to go down with your first valuation under the new regime, I challenge you to pause. If these were called ‘basic’ and ‘premium’ services rather than ‘bespoke’ and ‘fast track’ would you be quite so quick to blindly jump on the ‘fast track’ bandwagon?

    David Hamilton is Chief Actuary at Broadstone


    Footnotes:

    Any views expressed in this article are those of the author(s) and may not necessarily represent those of Life Risk News or its publisher, the European Life Settlement Association

    2025 - July Health Longevity and Mortality Risk Transfer Longevity Risk Pension Risk Transfer Volume 4 Issue 7 – July 2025
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