Sponsor opinion must sit at the heart of DB endgame strategy

• A third of companies see endgame as number one priority

• 70% of companies have reviewed their endgame strategy in past 12 month

Nearly a third (30%) of companies believe that planning for the future, and their scheme’s endgame, is their number one DB priority over the next few years, according to research from Hymans Robertson.  As it releases its latest paper, the firm warns that companies could be at risk of a sub-optimal endgame strategy if they don’t engage with their scheme trustees. Results from a recent webinar confirmed this, with nearly half (40%) of the attendees believing that sponsor opinion is the main driving factor when choosing endgame strategy.

The speed of change within the pensions market are leading more schemes to review their end game strategy, with nearly three-quarters (70%) having done so in the past twelve months. Of those that have reviewed, 90% have started formalising their plans as a result. The leading pensions and financial services consultancy outline key considerations – including early engagement and flexibility of strategy - that all DB schemes should follow to make the process straightforward. A unified approach – supported by sponsor and company - is key to a successful endgame strategy.

Commenting on the importance of engaging with sponsors, Sachin Patel, Head of Corporate DB Endgame Strategy, Hymans Robertson, says:

“With such a large proportion of companies seeing endgame as their key priority, it’s important that the sponsor’s views are taken on board and will sit at the heart of all endgame planning. Results from our webinar clearly back this up, with two fifths of all attendees (40%) agreeing that the main driving factor for setting their endgame strategies was the sponsor’s appetite and views. This highlights the need for companies to engage with trustees as soon as they can. This will allow for collaboration and unity of thought, ensuring any risks from a lack of consultation are mitigated, and key decisions can be made in a straightforward manner.

“Given how quickly companies are taking action with their endgame plans, we would encourage that conversations between sponsors and scheme take place on a regular ongoing basis. This will enable good communication and flexibility to sit at the core of endgame strategy.”

Commenting on the survey results, Sachin Patel added:

“It is surprising that of those who have reviewed their endgame strategy in the past year, 44% of respondents with a scheme size under £250m confirm they are targeting a run-on strategy. For these smaller schemes future management costs can be significant, and run-on may not be economically viable. Further analysis will be key for schemes of this size to truly understand the drag that expenses create.

“The survey also highlighted the importance of non-financial drivers for choosing a run-on strategy, which may go some way to explaining why schemes of this size are choosing not to target a risk transfer settlement. For those where run-on isn’t automatically attractive from an economic perspective, a solution that allows smaller schemes to run-on with lower ongoing costs could gain traction in the market. Endgame choices are not black and white, and bringing together all factors – both economic and opinion of key stakeholders – is crucial for an effective endgame strategy.”