Navigating the pensions endgame universe in 2020: What you need to know

By Steven Dicker, Matthew Cooper and Keira-Marie Ramnath

New regulation, continued innovation and a significant amount of pension endgame activity look set to make 2020 an exciting year for the defined benefit (DB) pensions landscape.

But assessing the range of endgame solutions can be challenging. That’s why we convened a group of over 100 pensions professionals at our recent ‘Navigating the pensions endgame universe’ event to tackle the topic.

We were joined by industry figures including David Fairs from the Pensions Regulator, Richard Giles from The Pension Trust, Adam Saron from Clara Pensions and Chris de Marco from Legal & General.

Below we’ve summarised some key themes from the many insightful talks and discussions.

Stay up-to-date with regulatory change

The Pensions Regulator (TPR) reiterated there will be important updates this year.

• A revised funding code is expected for consultation in early March with key areas including a prescriptive ‘Fast Track’ approach to funding, specifying assumptions and recovery plan lengths and if followed, there will be little to no intervention from the regulator.
• There will be options for pension schemes to adopt a ‘Bespoke’ approach that will permit flexibility, although each case will be assessed by the regulator.
• As part of any funding agreement, trustees and sponsors will need a ‘long-term funding target’ to be met by the time the pensions scheme reaches a predefined measure of maturity.
• The regulator will consult on simplifying the use of contingent assets and stress testing investment risk.

We predict for many pension schemes the next funding valuations will be critical, as it will set the journey to the pension endgame in terms of timescales, cash contributions and risk.

Ensuring stakeholders are up-to-date on regulatory information will be essential and must be factored into the valuation process.

Monitor the changing market

We heard how more schemes, of increasing size, are transferring to DB Master Trusts. It was interesting to hear how DB Master Trusts can offer versatility to support maturing pension schemes run-off over time or to target eventual buyout.

In terms of DB superfund consolidators, it was reassuring to hear how TPR is working with them on an appropriate regulatory framework to ensure superfunds operate effectively and protect members. An interim regime to allow the first transactions is expected this year and we should hear more from TPR and consolidators in the coming months.

It will also be a busy year for the buyout market, even if there may not be the same number of super-sized, multi-billion transactions. This may provide more scope for small to medium sized schemes to complete transactions - so one to consider when planning.

Consider innovative solutions

Innovation is more important than ever in the endgame landscape and a critical point for me was that we’ll likely see more schemes outsource the route to buyout through fiduciary management or new solutions. We asked our audience where they had actively considered different solutions:

Attendees who represented smaller pension schemes were interestingly more likely to have considered forms of consolidation such as fiduciary management, DB Master Trusts or DB superfunds.

By applying our broad range of skills, knowledge of market offerings and independent perspective, we are helping trustees and sponsors assess different options to make decisions and avoiding paralysis from too much choice.

You can find out more about how we’re helping clients tackle these challenges and by getting in touch via the details below.

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