Your questions answered

An escrow account is a bank account held independently of two parties, the funds in which can be released to either party based on certain pre-agreed conditions, for example the funding level of the scheme.

An Implementation Statement must be produced by trustees of defined benefit (DB), defined contribution (DC) and hybrid pension schemes with at least 100 members. It has to be included as part of the annual scheme report and accounts and be published online. Its purpose is to explain how over the course of the year, the trustees have acted in accordance with the policies and objectives detailed in the scheme’s Statement of Investment Principles (SIP). The details of what has to be included differ between DB schemes and DC/hybrid schemes.

This is a swap contract whereby one party pays a fixed stream of payments in exchange for a stream of payments that varies with actual inflation rates. Inflation swaps are useful for hedging a pension scheme’s inflation risk – to do so, the pension scheme would pay a fixed amount and receive an inflation-linked amount. A rise in inflation expectations would typically increase the scheme’s funding target but the scheme would benefit from an offsetting increase in the value of its inflation swap.

An insurance buy-in transaction involves purchasing a policy from an insurance company that matches the benefits due from the pension scheme. This policy is held as an asset of the scheme and provides a regular income to the scheme to cover the benefit payments that need to be made to members. It is a step towards eventually buying out the benefits completely with the insurance company ahead of winding up the scheme.

This is a swap contract whereby one party agrees to pay a fixed rate of interest in exchange for a floating rate of interest. Interest rate swaps are useful for hedging a pension scheme’s fixed liabilities. For example, where scheme members receive a fixed rate benefit every year, a pension scheme could enter into a swap contract to pay a floating rate of interest and receive a fixed rate of interest. A fall in interest rates would typically increase the scheme’s funding target but the scheme would benefit from an offsetting increase in the value of its interest rate swap.

This refers to (part of) a firm, such as LCP, or to an individual within such a firm that provides investment advice across a wide range of areas such as investment strategy and investment manager selection. Such advice is normally provided to institutional clients, including pension scheme trustees and companies, rather than to individuals.

As part of their governance structure, many pension scheme trustees have set up an Investment Sub-Committee. The ISC is usually a subset of the full trustee board. Its job is to monitor investment-related matters and to recommend action to the trustee board and/or act on its pre-agreed executive powers. Particularly in the case of large trustee boards, having an ISC normally leads to faster decision-making, which can often be beneficial.

DB pension scheme run-on is where you continue to operate a pension scheme beyond the funding level required to fully insure and buy-out pension benefits.

A pension scheme wind-up is the process of formally closing down a pension scheme, after the scheme assets have been used to secure members’ benefits and any residual assets have been distributed. For defined benefit schemes, this usually involves securing members’ benefits with an insurance company through what is known as a “buy-out”.

In the context of a defined contribution (DC) pension scheme, a platform is an investment structure established by a pension provider (eg an insurance company) which offers a wide range of investment funds. These normally comprise both the provider’s own (“in-house”) funds as well as third party (“external”) funds. Members of pension schemes which are on the platform will then have access to some or all of the available funds, with details of the precise fund offering depending upon those responsible for the pension scheme – eg the trustees in the case of a trust based arrangement and the company in the case of a contract based (such as a Group Personal Pension or a Stakeholder Pension) arrangement.

The "silver dividend" refers to the potential economic benefits that can come from an aging population, particularly as people live longer and healthier lives. Instead of seeing older people only as a cost or burden, the idea is that if they stay active, keep working longer, volunteer, or support their families and communities, they can continue contributing to society.

In simple terms, a SPAC is a listed company with no commercial operations that exist purely to raise capital from investors and to use that capital to acquire privately-held companies and to help those companies grow through investment in the business, increasing brand awareness and/or acquisition and then ultimately to take the business public. SPACs have two years to complete a transaction, else they must return the raised funds to investors.