UK pension schemes have become “increasingly focused on their endgames - which are also becoming more achievable”, according to a recent survey conducted by Aon.

Aon’s Risk Settlement Survey 2021 - Journey to Settlement, which surveyed 120 UK pension schemes with sizes ranging between £50m (€58m) to over £1bn – looked into the funds’ progress and planning towards the settlement of risk.

It showed that despite only 34% of schemes are now targeting buyout deals, the percentage is consistently increasing as schemes’ funding positions improve and as buyout becomes more attainable.

Michael Walker, associate partner in the Risk Settlement Group at Aon, said: “The good news is that 77% of schemes are now over 80% funded on their endgame target. However, at the moment, only 26% of schemes expect to reach their endgame in less than five years.”

He added that schemes may be over-estimating how long it would take them to reach that target.

“We can understand why they might think that’s the case, but cautious forecasts can heighten the risk of missing opportunities along the journey,” he said.

He noted that over the last few years the time taken to reach endgame targets has been invariably less than expected, so he suggested that trustees and plan sponsors would need to ensure “they are fully prepared to take their next step when the opportunity arises”.

Aon’s survey is available here.

John Good scheme completes bulk annuity with Legal & General

John Good & Sons Limited Pension Scheme has agreed a £17m full scheme buy-in transaction with Legal & General Assurance Society Limited, covering the benefits for over 80 pension scheme members.

The scheme – an existing Legal & General client – has also used Legal & General Investment Management (LGIM) as its fund manager since 2003.

Transaction preparation was an important part of the process for the scheme which involved thorough data cleansing and de-risking of the scheme’s assets into LGIM’s Buyout Aware funds.

According to an announcement, these funds are specifically designed for schemes approaching buyout, with an investment strategy that aligns with factors that affect buy-out pricing.

When market conditions moved favourably, the scheme reacted quickly to enter a price lock to its LGIM Buyout Aware fund units, it said. This process ensured that the scheme had the price certainty it needed to then agree the terms of the buy-in and complete the transaction.

XPS Pensions Group advised the scheme on the transaction, while Arc Pensions Law provided legal advice.

John Rutherford, trustee at the scheme, said: “We are very pleased to have reached this important stage in our journey to give our members greater security with a well-known and respected company.”

Lincoln Pensions launches journey planning tool

Lincoln Pensions has launched PensionSketch, an integrated scheme projection and risk modelling tool.

It will enable trustees and sponsors to map out a pension fund’s journey plan that best balances all key risks, it said.

PensionSketch uses a scenario-based approach to plotting a journey, which integrates both sponsor and scheme modelling. The tool also includes a risk radar that provides a dynamic assessment of the risks that each potential journey plan entails.

The new tool has been designed to improve three key areas:

  • end-state decision-making – enabling decisions to be made in the context of long-term covenant reliability;
  • journey plan length – which can be benchmarked relative to covenant visibility; and
  • investment risk – which can be considered relative to sponsor risk capacity.

Lincoln Pensions said that PensionSketch has been created ahead of The Pension Regulator’s new funding code of practice, which is expected to place increasing emphasis on journey planning.

The funding code is also likely to benchmark acceptable fast-track valuation submissions relative to both scheme maturity and covenant strength, it said.

As a result, Lincoln said, journey plans need to be considered in the context of a covenant that supports a scheme until it reaches its end state, with covenant affordability and visibility informing what end-game is appropriate, when it should be reached, and how schemes can get there.

To read the digital edition of IPE’s latest magazine click here.