The cost for DB Pensions Schemes that don’t have cohesive buy-out journey plans could be as much as £20m, according to analysis by Hymans Robertson, as it launches a new online DB Endgame Guide: ‘Planning your journey to buy out’ to link all elements of the buy-out journey into one centralised plan. The analysis highlights the benefits for Trustees of focussing their reporting on the key decisions, and planning activities in a way that supports their journey to buy-out. The new guide is designed to help Trustees navigate this important endgame path in an easy and straightforward manner.
The analysis, undertaken by the leading pensions and financial services consultancy, found that aligning all the different workstreams in a journey plan can create efficiencies in each area and provide collective benefit. With 75% of DB schemes now actively targeting buy-out as their endgame*, Trustees can add material value by understanding their timescales to buy-out and how this might fluctuate. They can then monitor and adapt their journey plans accordingly. If a comprehensive plan is agreed by both Trustees and sponsors that includes several key areas it can lead to greater efficiencies. These areas can include the approach to funding and monitoring, investment strategy, communications strategy and approach to settling any DC and AVC benefits.
The new guide provides a clear online framework to help Trustees avoid potential pitfalls on their journey to buy-out. It guides them to maximise synergies and ensure they have the right information from their advisors as they embark on their buy-out journey. It also provides a detailed outline of the key areas to consider whilst aiding with decision-making for Trustees. Practical guidance on a co-ordinated approach, helping Trustees make the right decisions for their individual scheme’s requirements by breaking down the most important things to consider at each stage of the journey, is also included.
Commenting on the importance for schemes to understand all considerations when developing a buy-out journey plan, Richard Wellard, Partner, says: “With the affordability of buy-out coming ever closer for so many schemes, it’s becoming even more important to have a cohesive journey plan in place. Our analysis shows the vast cost savings that can be made for those that do. There are many different elements for Trustees and sponsors to keep under control and make sure they are progressing in the right way at the right time. It is imperative that Trustees have a clear vision of the steps needed, are able to monitor progress, and have the information that enables them to take action and adjust plans in response to unforeseen events. Joined-up planning and oversight helps Trustees avoid unnecessary costs and unnecessary risk.
“Our newly launched DB Endgame Guide is a buy-out journey plan that can be used by Trustees to identify tasks within the eight key workstreams, ensure they are co-ordinated in a suitable way and identify when decisions need to be made. Investing in a review of scheme benefits and administration practices at an early stage avoids costly delays in the future. The careful management of wind-up reserves avoids a situation where there are small surpluses that need to be “spent”, and reviewing illiquid assets within in investment portfolios in advance can avoid any future losses. All these actions create efficiencies and savings for Trustees.”
Outlining his view on why member engagement is a vital element of journey planning, Richard said: “Trustees will have members’ best interests at the heart of all their decision making. There is always a balance as to what to communicate when plans remain uncertain and could be subject to change. However, at the right time, members will value reassurance that their pensions are protected and the income they rely on will continue in the same way through the buy-out process. This is best achieved through a planned engagement strategy with good communication helping to avoid future issues. Overall, the more Trustees are able to plan all aspects of their journey, the smoother the experience for all stakeholders.”
The new guide – Planning your journey to buy out - can be found here
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