Finding the right de-risking solutions for your journey plan
Traditionally insured buy-ins and buy-outs have been a core part of many schemes’ journey plans and will continue to be so for the majority of pension schemes.
However, there are now a range of emerging options that could complement these traditional solutions to help you design a more resilient path to your end goal.
Whatever your current position is, it is important to understand whether these emerging options could form part of your scheme’s strategic plan, either as part of the central case or if your scheme or sponsor’s circumstances change. It is therefore important to review your options regularly to ensure you understand the most appropriate ones.
There have been over
buy-ins over £100m over the past ten years.
LCP has advised on over 100 of these, more than any other firm.
Where can I find out more about journey planning?
We have two major reports to help you.
Our de-risking report is relevant for schemes considering a transaction in in the near term. For many schemes this could be an initial buy-in or a full buy-out, whereas for others this could be one of the new solutions such as DB superfunds.
If you need help deciding what your end goal may be, or it is some time away, our Chart Your Own Course report sets out a number of practical steps to get you started on your journey plan.
One of the key emerging options for schemes are “DB Superfunds” (or “consolidators”) and the first providers are expected to be approved by the Pensions Regulator soon. As well as DB Superfunds, there are other emerging solutions that are attracting new capital-providers to the UK pensions market. All else being equal, more capital brings greater stability and better funded pension schemes, so we view this as a net positive development for UK pensions.
The new solutions typically operate under a similar principle – providers are willing to loan capital to a scheme providing it is willing to agree to invest its assets in a particular way for an agreed period of time. The aim is for the scheme to reach its target by the end of the period (eg buy-out) and any excess returns are typically retained by the provider of capital. Whether these types of solutions will be appropriate is very scheme specific as it depends on the balance between several factors – including appetite for risk, funding position, and the strength of the sponsor covenant. Schemes should understand under what circumstances these solutions may form part of their journey plan and whether this is a central case or if certain events were to happen in future. By planning in advance, your scheme is better prepared to respond to circumstances in the best way for your members.