The paper examines the transformation of the pensions landscape for DB schemes and provides a guide for schemes as they assess their endgame plans. As funding levels have improved, the DB market has undergone a vast and significant change in the past few years with the Pension Schemes Bill, consultations on DB surplus, evolving TPR Guidance and a new Funding Code, as well as a change of government – all giving schemes things to consider, adds the consultancy.
Against this backdrop, the leading pensions and financial services consultancy is increasingly seeing a strong trend of DB schemes reassessing their endgame strategy. With the Pensions Schemes Bill now progressing through Parliament, new legislation is set to make run-on and surplus sharing between sponsors and scheme members easier. It’s clear that buy-out is no longer the only choice for endgame, with a growing number of diverse strategies available for well-funded schemes.
The firm warns that action is needed by trustees and sponsors to help navigate the array of options available, and outlines key steps in their paper to help make this process straightforward:
1. Start engaging on an endgame strategy early, exploring the range of available options
2. Trustees and sponsors should work together and have a shared vision
3. Review the impact of the Pension Schemes Bill and how this will shape strategic aims
4. Keep on top of regulatory and market developments
Commenting on the changing DB market, Laura McLaren, Head of DB Scheme Actuary Services says: “The DB landscape has been transformed at an incredible speed in the last few years, and the market today offers a range of options that DB schemes can work towards. There is a growing movement for schemes to think more purposefully about surpluses as they become a reality, with rising interest rates and better than expected investment performance. With all these factors at play, schemes are now reassessing their endgame strategies and re-evaluating their timeframes and objectives. While the speed of change is to be welcomed, it is important that sponsors and trustees take the time to work together to think about the impact these changes will have on their own scheme, its aims and goals.
“However, that said, it’s also clear that buy-out is no longer the only choice for DB schemes with a much broader spectrum of options available to well-funded schemes. With the long-awaited Pension Schemes Bill published last month, and the second phase of the Government’s Pensions Review launched earlier this week, there appears to be no slowdown of innovation, choice and flexibility. While the plethora of changes are to be welcomed, there are now an increasing range of issues that schemes must navigate. For most schemes, the final legislation will be the clear deciding factor fleshing out the decision-making required, although proactive thinking about how to steer a scheme should be encouraged.”
Commenting on the importance of reviewing all options, Laura continues: “While it’s still early to predict how these changes will impact DB schemes and the market in the longer term, it is interesting to see, even in the short term, the impact the changes have had on the DB market. Within the insurance space, we have seen the market innovate to respond to growing demand. Similarly, the market for alternative solutions continues to develop and we are pleased to see the dial move forward around superfunds as part of the Pension Scheme Bill. It’s important to remember that there is no one size fits all solution – the optimal endgame approach will very much depend on a scheme’s individual circumstances. The landscape is continually evolving, and we would support early planning to help schemes seize opportunities as they arise.”
Hymans Robertson - Endgames State of the Nation paper.
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