DB schemes must implement an ‘endgame’ framework

Defined Benefit pension schemes must implement a decision-making framework as they approach the “endgame”, ensuring they are making the best decision for members, Redington has said.

In its whitepaper Destination Endgame published today, 24 October, the consultancy firm said that schemes must put a decision framework in place in order to “assess the different options available against each other fairly”.

Increasingly, employers are looking to manage their DB schemes through to the end of their lifecycle, and a number of regulatory, competitive and market developments as “drastically” altered the environment for trustees and sponsors, Redington said.

Commenting on the paper, Redington head of DB pensions, Dan Mikulskis, said: “The choices facing trustees looking toward the endgame are more complex than ever. While there are plenty of products that might be right for them, what's often missing is the right framework to make the key decisions.

“In a landscape full of products with significant commercial value, truly independent and unbiased advice has never been more important.”

According to Redington, the number of schemes introducing endgame planning as the number one priority increased substantially in H1 2018, with 40 per cent of their clients considering this.

Schemes have been acting swiftly to implement the framework due to better than expected funding level progress since 2016 and high-profile corporate failures such as Carillion and House of Fraser.

Furthermore, the introduction of new products and providers, helping to drive down the cost of bulk-annuity deals, as well as the introduction of new consolidation vehicles has meant schemes have more options when deciding their endgame destination.

Redington head of integrated actuarial, Marian Elliott, added: “Given these developments, we believe the time is right for trustees and sponsors to put some serious thought into developing their endgame strategy.

“In our new paper, we have created a practical roadmap to guide schemes through the various options and products available, helping decision makers adjust course as the environment changes.”

Such a framework could help a number of trustees who don’t feel comfortable handing over their schemes to large consolidation vehicles.

A survey from Willis Towers Watson suggested that just one in four trustees would be confident enough to make the decision.

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