Trustees and sponsors of defined benefit (DB) pension schemes should adopt an ‘objective-led’ approach to endgame planning, rather than treating buyout as the automatic default option, a report from the Society of Pension Professionals (SPP) has argued.

The report was based on findings from an industry roundtable consisting of actuaries, trustees, legal advisers, investment managers, and covenant specialists.

It assessed how improved funding positions among DB schemes and new endgame options, such as superfunds and capital run-on strategies, had transformed the endgame landscape.

Trustees and sponsors should not assume buyout was the only valid destination, the roundtable participants suggested.

They argued that strategic planning needed to start with clear, ranked objectives that balanced benefit security, affordability, discretionary member upside, and corporate balance sheet risk.

Trustees were found to be faced a nuanced value judgement between securing immediate guaranteed outcomes through buyout, which could forfeit potential financial upsides, versus managed run-on strategies.

Although smaller schemes faced higher per-member governance costs, which often make buyout the most efficient option, the report argued that scale alone should not dictate strategy.

Schemes were also encouraged to establish documented contingency frameworks with explicit financial triggers to change course when market or sponsor conditions change, in order to manage adviser conflicts and market volatility.

"The traditional assumption that buyout with an insurance company represents the default, automatic 'endgame' is increasingly being challenged,” commented SPP Covenant Committee member and roundtable chair, Alex Beecraft.

“As the DB pension landscape evolves, decision-making should shift from being outcome-led to objective-led, balancing long-term member security against economic upside, commercial realities, and the expanding array of risk management tools available today.

“Crucially, where schemes elect to run-on, this should not be viewed as a permanent rejection of a risk transfer transaction, but rather a timing decision of 'not now'."

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