Defined benefit (DB) pension fund trustees in the UK planning their endgame journey with buyout transactions in mind could save up to £20m, according to Hymans Robertson’s latest online guide: Planning your journey to buyout.
Last year, the firm claimed buyout costs for UK DB schemes could be reduced by around £100bn by offering a clear range of options to DB members.
With 75% of DB schemes now actively targetting buyout as their endgame, the consultancy said trustees can add material value by understanding their timescales to buyout and how this might fluctuate.
Hymans Robertson added that this will allow trustees to monitor and adapt their journey accordingly. In addition, it said that if a comprehensive plan is agreed by both trustees and sponsors that includes several key areas, it can lead to greater efficiencies.
These can include pension funds’ approaches to funding and monitoring, investment strategy, communications strategy, and to settling any defined contribution and additional voluntary contribution benefits.
The guide is expected to provide trustees with a “clear” online framework to avoid “potential pitfalls” on their journey to buyout.
The guide also includes practical guidance on a co-ordinated approach to help trustees make the right decisions for their individual schemes’ requirements by breaking down the most important things to consider at each stage of the journey.
Richard Wellard, partner at Hymans Robertson, said: “With the affordability of buyout coming ever closer for so many schemes, it’s becoming even more important to have a cohesive journey plan in place.
“Our analysis shows the vast cost savings that can be made for those that do. There are many different elements for trustees and sponsors to keep under control and make sure they are progressing in the right way at the right time.”
He noted that it was important for trustees to have “a clear vision of the steps needed” and for them to be able to monitor progress and having the information that would enable them to take action.
“Joined-up planning and oversight helps trustees avoid unnecessary costs and unnecessary risk,” Wellard said, adding that investing in a review of scheme benefits and administration practices at an early stage avoids “costly delays” in the future.
He continued: “The careful management of wind-up reserves avoids a situation where there are small surpluses that need to be ‘spent’, and reviewing illiquid assets within investment portfolios in advance can avoid any future losses. All these actions create efficiencies and savings for trustees.”