Value in a strategic pause ahead of endgame decisions

The need for DB schemes to think carefully before deciding on their insurance endgame options has never been more pertinent, states Hymans Robertson as the firm releases the latest update to their ‘Excellence in Endgames’ insights hub.

Analysis from the leading pensions and financial services consultancy highlights the increasing array of options and strategies available for trustees and sponsors. These present an opportunity to consider the full range of endgame options, noting that schemes that are in a position to insure are in a very different position to those with significant deficits.

For many DB schemes insuring benefits has now become the norm, with those in a well-funded secure position set to continue to follow a familiar path - with views potentially strengthened by recent financial events. Ensuring all parties fully understand the resilience of their current position is crucial to consider the choices available and best path forward. If necessary, a strategic pause to evaluate and explore all options, could be time well spent.

Commenting on the case for a strategic pause, Iain Pearce, Head of Alternative Risk Transfer, Hymans Robertson, said:

“For trustees and their members, the last five years have been turbulent in a way that no one could have foreseen. A pandemic, a global financial crisis and extreme volatility in the gilts market are just a few of the huge events that no-one saw coming. It’s understandable that trustees would like to offer their members the greatest stability they can after such a period of uncertainty and race towards the goals they have previously set.

“However, given a decision to settle cannot be undone - very well-funded schemes face a different range of opportunities and challenges to schemes with a shortfall. This means that taking stock and considering all options is crucial to making the best decisions and of huge value.

“Schemes that have reached the point of being able to insure benefits should consider the consequences of following a range of options. Whilst continuing to be able to afford to insure is important, the more fundamental questions are how is the risk of failing to pay full benefits, or needing more money from a sponsor, changing between options. Stopping to consider different scenarios using our insights hub may lead to trustees adopting a very different approach, for example, deferring insurance or using alternative settlement options.

“We recommend Trustees explore these issues and, if needed, have the confidence to take the time to evaluate the range of options available to them and reassess their perspective once they have reached these very strong funding levels.”

The Hymans Robertson Excellence in Endgames insights hub and decision-making tree can be found here.