The long and winding road now needs a journey planner

Published by Chris Ramsey on

Our expert

  • Chris Ramsey

    Chris Ramsey

    Principal and Head of DB Endgame (Trustee Consulting)

  • Estimated reading time: 3 minutes


    In the past, defined benefit (DB) pension schemes have been viewed as something that will run into the future for an indefinite period.

    However, as DB schemes close the doors to new members – and often existing ones too – that perception has changed. They now have a finite lifetime and employers would like that to be as short as possible.

    "Establishing which route you are aiming for is critical, as they require two very different strategies."

    It’s all about planning

    The future could be buying out members’ benefits with an insurance company, if that’s affordable, or continuing schemes indefinitely and paying pensions until the last pensioner dies.  Establishing which route you are aiming for is critical, as they require two very different strategies.

    We believe it is very important for trustees and employers to engage in planning this long-term journey in order to establish where they're trying to get to and how they will achieve it. That is a considerable cultural shift from the current focus on the funding regime. 

    It’s not just us saying it

    The Pensions Regulator has already made it abundantly clear in its annual funding statement that it expects trustees and employers to consider a long-term journey plan and to develop investment and funding strategies that will compliment this approach.

    Before long, the Government will make this approach mandatory. We are advising trustees and employers not to wait until then, but to start thinking now about how best to develop the long-term plan for your scheme today.

    Plot your journey

    To develop a long-term plan of the scheme’s destination requires a number of key stages. It’s not rocket science, you’d do the same if you were going away on holiday.

    You must start with knowing your point of departure, agree your destination and work out how you're going to get there. 

    Once that is done, you need to plan to make sure you don’t get lost on the way and have an idea of what you're going to do when you arrive.

    Get your ducks in a row

    It’s not quite as straightforward as that of course, and there is a hierarchy to be imposed. The primary focus must be developing a funding and investment strategy best placed to get you to your final destination.

    Beyond that, there is a crucial role for administration, governance and legal matters to be addressed.

    The final countdown

    For instance, if your scheme is getting close to buyout, then you really should be thinking about the quality of your data and ensuring that legal documents are in order. This may not be essential now, but if dealt with early, the scheme will be perceived as a credible proposition by insurers when it goes to market.

    Taking time to plan for the long term will allow the scheme to take advantage of situations that present themselves along these final stages of the journey.