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Survey Report

Do pension scheme illiquid investments present an insoluble issue?

De-risking report 2024

By Gemma Millington | January 24, 2024

Many pension schemes can now afford buyout earlier due to the LDI crisis. However, some trustees may face difficulties in realising illiquid assets quickly. Gemma Millington provides a 3-step guide for trustees to establish an optimal strategy for their scheme.
Retirement|Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Technology

Many pension schemes have found themselves in the position of being able to afford buyout earlier than anticipated following the LDI crisis. This is good news, but for trustees who had invested in illiquid assets with the intention of holding over a long-term time horizon, it may not be possible to realise these quickly to meet a cash premium. This potential barrier to transaction has been well publicised – in fact, in a survey carried out in our September 2023 webcast, over a quarter of our clients said that managing their illiquid assets was the main barrier to meeting their scheme’s endgame objective. In this article Gemma Millington provides a practical “3-step” guide as to how trustees can establish the optimal strategy for their scheme.

  1. 01

    Are the illiquid assets an issue?

    Before spending time and money on investigating further, understand the breakdown of asset requirements between the initial buy-in and subsequent expenditure to move to buyout. Depending on the timing of expense payments, data cleanse (including GMP equalisation) premiums and any residual risk or run-off cover, can the illiquid assets be used to meet future payments, rather than the initial buy-in premium required in the short-term?

    It’s also key to understand the best, and worst, case scenarios in terms of when the illiquid proceeds will be received. Mapping these against the asset requirements will allow everyone to understand the size of the issue. For example, if there is expected to be a surplus after securing members’ guaranteed benefits, it may be that the trustees and the sponsor can agree to wait for the illiquids to run-off to allocate the surplus as required under the Rules.

  2. 02

    Is a loan from the insurer or the sponsor available to bridge the gap?

    Deferral of part of the premium is an established offering in the market; effectively the insurer provides the scheme with a loan. How much, and for how long, varies between insurers so understanding these differences will be important to factor into selecting who to approach for quotes, as well as who to transact with. With some insurers willing to defer up to 30% of the premium for two years or more, for many schemes this would be sufficient to overcome the barrier to transaction otherwise presented by illiquid assets.

    Insurers do charge interest on the element of premium that is deferred, so it can be worth considering whether the sponsor would be willing to provide a loan at a lower rate. Conversations with the sponsor can, in our experience, take some time to work through so knowing that there is a solution provided by the market can give trustees confidence to proceed with the transaction process in the meantime.

    The other challenge with a loan arrangement is having certainty that the value of the illiquids will be sufficient to repay the loan, particularly with the changes in value that have been observed over the last year or so. Trustees will need to make a judgment based on the asset class, length of the loan, wider funding position of the scheme and the willingness of the sponsor to provide support.

  3. 03

    How can best value be achieved if the illiquid assets are needed to pay the premium?

    The insurer may be able to accept the assets in-specie; this can be a useful backstop and is likely to be the lowest effort option, but is often sub-optimal with valuations placed on assets lower than can otherwise be achieved by selling or restructuring. Trustees should work with their transactions and investment advisers to understand:

    • Which assets the insurer is willing to accept
    • What value the insurer will ascribe
    • How this compares with the value that can be achieved by selling on the secondary market or, potentially, to the sponsor
    • Timescales for selling the assets, and how these align with the plan for buy-in

    In terms of the secondary market, WTW’s investment team has a lot of experience of these sales, so can provide an indication of the likely haircuts for the specific assets being held to inform the best approach.

    Similarly our transactions team is pushing the insurers to innovate to meet clients’ needs and negotiating different solutions on a project-by-project basis. For example, in some cases we have seen insurers willing to act as the “buyer of last resort” for illiquid assets. This combines a deferred premium, permitting the scheme time to sell assets on the secondary market, with a guarantee that if this proves impossible or undesirable the insurer will accept transfer of the assets, at a specified price, at the end of the period of deferral.

    Finally, we also have a specialist team within our insurance consulting business which advises the bulk annuity providers themselves on the approach to illiquids – this team can be a useful source of knowledge when considering whether the assets in question could be restructured to better meet insurers’ requirements.


Many of the cases we have led this year – ranging from the record-breaking RSA transaction to sub-£100m deals – have involved finding suitable solutions to illiquid assets. In our experience, whatever the solution, trustees need to consider this issue carefully, holistically, and in good time, to ensure that they adopt the optimal strategy for their specific circumstances.


Senior Director, Transactions
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