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Ritchie in bond strategy to beat pension deficits

Faculty of Actuaries president Stewart Ritchie is urging financially strong companies to issue long-dated bonds to fund their pension deficits and provide investments for other ailing pension schemes.

Setting out his agenda for his two-year term in office, Ritchie says this would be a win-win strategy for pension funding.

He says it would be a cheap and tax-efficient way for strongly performing firms to reduce their pension deficits and would create an additional source of high-quality corporate bonds that other companies could invest in.

Ritchie says a major concern is that many firms see their pension deficit as an interest-free loan and are reluctant to reduce it.

He says actuaries must help find solutions to provide financial stability, for example, by constructing longevity bonds. He adds that more work must be done to ensure employees and employers understand the implications of shortfalls in defined-benefit schemes.

Ritchie says: “If there is a problem, then it is better that consumers understand it, otherwise, they will not be in a position to take remedial action. This is not necessarily leaving the scheme in panic but it might be to ask the employer what it is doing to fill the black hole or starting additional saving.”

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