Smaller defined benefit (DB) schemes may lack the governance capacity needed to assess the growing range of endgame options available to them, Aptia head of pension risk transfer, Russell Laver, has warned.

Speaking during a panel discussion at the Pensions Age Autumn Conference, Laver noted that the risk transfer market had changed significantly over the past three or four years, with increased insurer interest and new solutions making transactions accessible to schemes across a much wider range of sizes.

However, he suggested that the immediate challenge for smaller schemes had shifted from accessing the market to ensuring trustees had the time, resources and expertise needed to consider their options properly.

“The range of options for schemes is now fascinating,” he said, explaining that trustees needed to remain in control and assess all the available routes, but that smaller schemes may not always have the capacity to do so effectively.

Data is another key risk, according to Laver, who stressed that accurate information was critical irrespective of whether a scheme intended to pursue buyout, run-on or follow another endgame route.

He therefore urged schemes to begin addressing data issues before reaching their endgame destination and to ensure that improvements were subsequently maintained, rather than treating data cleansing as a one-off exercise.

Laver also highlighted investment strategy as a potential concern after significant changes in asset allocation among smaller schemes in recent years, warning that some could find themselves locked into positions that may prove difficult or costly to unwind.

When asked what solutions were available, he argued the most important step was to establish a clear plan covering the scheme’s objective, timetable and available resources.

He also called on the pensions industry to improve how it communicates and calculates the full costs associated with reaching an endgame.

"Historically, advisers often costed individual projects, such as a buy-in, rather than the complete journey through to buyout and wind-up," he added.

"The industry needs to become better at providing trustees and sponsors with a single view of the likely total cost from the outset, helping them understand whether their chosen objective was affordable and reducing the risk of unexpected expenses emerging later."

Meanwhile, Aptia partner, Karen Scott, argued that administration needed to be involved much earlier in this planning process.

Scott said administrators should ideally participate in strategic conversations around two years before a proposed transaction, rather than being asked to complete extensive data and benefit work within a matter of weeks.

Early involvement could create a smoother, more controlled journey, while schemes that delayed administration risked a last-minute rush.

She also noted that smaller schemes traditionally had less automation, with some member records updated manually only when an event such as retirement occurred.

While this could work during business-as-usual administration, she warned this was unsuitable when complete and accurate data needed to be supplied quickly for a transaction.

“Small schemes and large schemes deserve the same journey,” Scott concluded.

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