DB schemes need to reassess their endgame plans due to recent industry and legislative changes, according to Hymans Robertson.
The firm’s ‘Excellence in Endgames State of the Nation’ paper outlines how the pensions landscape for DB schemes has changed and provides guidance for assessing endgame options.
According to Hymans Robertson, funding levels have improved, and significant developments such as the Pension Schemes Bill, consultations on DB surpluses, updated TPR guidance, a new Funding Code, and a change of government have introduced new factors for schemes to consider.
The report notes that an increasing number of DB schemes are reviewing their endgame strategies. As the Pension Schemes Bill progresses through Parliament, new legislation is expected to facilitate run-on and surplus sharing between sponsors and scheme members. This expands the range of potential endgame strategies beyond buy-out for well-funded schemes.
Hymans Robertson advises trustees and sponsors to act early to navigate pension options more easily. They recommend starting endgame planning promptly and exploring all choices. Trustees and sponsors should collaborate closely to create a shared vision. It’s also important to review how the Pension Schemes Bill affects strategic goals. Finally, staying updated on regulatory and market changes will help keep plans on track.
Hymans Robertson head of DB scheme actuary services Laura McLaren 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.
“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.”