Isio has launched a new service for trustees and sponsors of defined benefit (DB) pension schemes to support decision-making on long-term strategy.
Isio says the service responds to a growing need for schemes to consider a range of endgame options, recognising that immediate buy-out may not be the most suitable route for all well-funded schemes.
The service, developed over the past two years in collaboration with clients, uses stochastic modelling, which considers many possible future outcomes and their likelihoods, to provide a quantitative assessment of different strategic options. This approach offers a more detailed analysis than traditional deterministic models, which show only a single predicted outcome based on fixed assumptions.
According to Isio, many DB schemes have previously focused on buy-out as the preferred option when funding allowed, often due to large historical deficits. It says that with funding levels improving, schemes now have access to a wider set of strategies, including Purposeful Run On (PRO). The new service is designed to help schemes evaluate these alternatives more effectively.
The service applies modelling techniques typically used by larger schemes but has been refined to be cost-effective and accessible for a broader range of schemes. Isio says it has already been used by over 20 clients, with assets ranging from £50 million to several billion.
Isio says clients have used the service to compare PRO with early buy-out, set parameters for surplus release frameworks, assess sponsor contributions to close insurance funding gaps, and support investment decisions such as setting return targets or evaluating partial buy-ins.
Isio director Matt Brown says: “Whether to run on purposefully or buy-out at the earliest opportunity is the single biggest decision in a DB scheme’s journey. If you think of these as the bookends, there’s a wide range of options in between.
“The risk-reward trade-offs are nuanced and the traditional approach of drawing a few deterministic projections on a page doesn’t cut the mustard. The tools that we’ve developed give our clients better insight to make informed decisions. We expect this type of analysis will become the gold standard for schemes considering their options under the new regime.”