Many schemes are now either closed to accrual or only have a handful of active members left and they are effectively in run-off. Like any legacy liability, the pension scheme must be managed carefully to limit the risk it poses to the ongoing sponsoring company. Key to achieving this is for scheme sponsors to devise a long-term endgame strategy for the scheme that is robust, realistic and can be agreed with the trustees.

We believe that an endgame strategy should consist of:

  • A realistic long-term target for the scheme, whether this is buyout, entry to a consolidator or a run-off within acceptable risk levels
  • A contribution and investment strategy plan for getting there within the wider business constraints of the company
  • Identification of short-term measures that can be implemented to reduce the ultimate cost of the endgame or bring its achievement forward in time.

We can provide the scheme sponsor with a thorough understanding of the various pension risks they face, both now and in the future. We are then able to quantify the risks in terms of the balance sheet, the profit and loss account and cashflow requirements. Once these pension risks and their impact are understood, we can help the sponsor identify a suitable long-term strategy to remove or reduce them. We can carry out return on capital calculations to ensure any risk reduction measures are effective compared to other competing demands within the business.

A key part of any endgame strategy will be de-risking the liabilities (in addition to asset side de-risking when appropriate).

Liability de-risking options

There are various liability side de-risking actions that can form part of the endgame strategy, some or all of which will be suitable for scheme sponsors depending on their particular circumstances:

  • Transfer-out options for non-pensioner members - There is increasing focus on this area amongst employers and trustees and, with a code of good practice in place, a well-defined process for facilitating transfers out of the scheme should be established.  This can be done on a bulk exercise basis, perhaps targeting all non-pensioners aged 55 and over (as these members can access their benefits immediately), or on a business as usual basis where members are given information on transfer options as part of their retirement options.Implemented correctly, scheme transfers are an excellent way of settling liabilities, removing risk and giving members flexibility.
  • Pension increase exchange options - For member who are already receiving their pensions, there may be scope to offer them the option to exchange some of their increasing pension for a higher level of non-increasing pension.  This can give rise to small reductions in ongoing liability and in some cases can have a more significant effect on any bulk annuity pricing.
  • Buy-in options - Even if a full buy-out is not affordable in the short-term, it may be possible to purchase a bulk annuity to cover some or all of the pensioner liabilities.  In some cases, a medically underwritten annuity, rather than one on standard pricing terms, may make sense for members with larger liabilities.  This partial benefit settlement can be a useful part of an endgame strategy even where that strategy is not to target an ultimate buy-out.  It removes risk (apart from some small counterparty risk) and, in effect, liability from the Scheme.

In some cases, there may be scope for trivial commutations to be facilitated but, by their nature, these tend not to have a significant effect on the risk or financial position in the scheme.


We can help scheme sponsors design appropriate endgame strategies that meet their wider business risk objectives and are achievable within their constraints.  We can guide the sponsor through the agreement process with the trustees and then onto the wider implications for implementation.

As part of their most recent actuarial valuation, Tate & Lyle were seeking to continue to de-risk their £1 billion legacy DB pension scheme, but without a significant increase in deficit recovery contributions.

As the company’s advisers, we helped them agree a funding plan that achieved the company’s objective of keeping cash contributions at their target level, while also delivering sufficient ancillary security for the trustees to remain comfortable with the pace of contributions, the level of investment risk being run, and the 2026 target for full funding on a self-sufficiency basis.

Prior to the scheme’s 2013 actuarial valuation, the company and the trustees had put in place a framework for future investment de-risking, which aims to reach a fully matched position within 15 years. In conjunction with this planned de-risking, and in the lead up to the valuation, the company and trustees also purchased a buy-in policy for a significant proportion of the scheme’s pensioner members.

We helped the company to align the scheme’s actuarial valuation method and assumptions to the existing de-risking framework, including a simplified technical provisions basis and an allowance for best-estimate investment out-performance within the recovery plan. This meant that the headline level of deficit reduction contributions being paid into the scheme could be maintained at the level set at the previous actuarial valuation (£12 million per year). At the same time, the company had also achieved significant progress towards de-risking the scheme over this period. The new aligned funding and investment target is to reach full funding on a self-sufficiency basis by 2026.

In conjunction with the committed deficit reduction contributions of £12 million per year, the company also set up a secured funding account, funded through annual payments of £6 million per year (for six years). The company and trustees have agreed a number of trigger events which may result in the release of some or all of the funds in the secured funding account into the scheme at various points over the lifetime of the structure.

These trigger events include under-performance of the scheme’s assets and a deterioration in the employer covenant, thereby ensuring that the agreement with the trustees forms a complete financial management plan for the remaining lifetime of the scheme. This innovative and integrated approach to risk management also ensures full compliance with the key principles set out in The Pensions Regulator’s new code of practice on ‘funding defined benefits’.


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