What endgames are pension schemes favouring? Alan Pickering: Most of the schemes I work with are thinking about the traditional route of an insurance buyout. It is a case of ‘when’ not ‘if’, but these days there is more choice. Any consultant worth their name will sit down and explain the options to sponsors and trustees because we are on this jour- ney together.


It is particularly challenging in the not-for-profit sector where the people making governance decisions are probably not pen- sions literate. It is difficult to engage those people because they see it as a legacy with no HR dividend so they want shot of it. You have to explain that they might damage their employees in doing that.


There is a marketplace out there so choose which bit suits you. Melanie Cusack: On the legacy point, I’m a trustee of a large charity, which has been self-sufficient for years. When we told them they could remove all risk through buying it out, they said their covenant is vastly superior to any insurer so will leave it here and run it off.


There is more to it than getting it off a company’s balance sheet. There are other considerations. Colin Cartwright: Sponsors are looking at alternative ways to use the pension scheme efficiently on their balance sheet. That could involve captive insurers or funding a defined contri- bution trust. However, running it themselves is ultimately a steppingstone to buyout. That is more of a ‘when’ rather than a ‘not’.


Charlotte Quarmby: We are seeing clients considering cashflow matching to manage some risks either prior to transitioning to an insurer or consolidator, or when in a state of self-sufficiency. Cashflow matching can be used to create additional returns to either get them to buyout or to generate a buffer, but it needs the right partner to manage it properly. Pickering: A disadvantage of having a long run-in to the end- game is that wisdom changes. Trustees have decided to invest in what insurers invest in, which was the mantra at one time. But it is important that as we take people along the journey that their hard-earned knowledge does not get stuck in a time warp. Lucy Barron: Investing like an insurer is a diversified strategy with lots of cashflow matching-type assets, but for most schemes, self-sufficiency ends up being a staging post because people, corporate activity and funding positions change. Some of the assets bought when you were investing like an insurer become a barrier to passing assets to an insurer. So it is worth testing and re-testing what your true endgame is. When we recently surveyed pension schemes, buyout had overtaken self-sufficiency as the preferred endgame for the first time. But they are just two options. That is the old world and there is now a range of other options to consider.


8 July–August 2022 portfolio institutional roundtable: Endgame investing


It is worth testing and re-testing what your true


endgame is. Lucy Barron, Aon


Are your schemes considering the other options, Elizabeth? Elizabeth Hartree: The traditional insurer-led options still feature heavily, although we are also having conversations about capi- tal-backed journey plans, where the interest is mainly coming from the sponsors. Some clients also want to explore how a single trust for DB and DC could be used to address issues sponsors are concerned about, such as inter-generational unfairness. Wayne Phelan: There are other influences driving this. Currency is one. Costs can fall dramatically for overseas sponsors. Depending where sterling sits, overnight it can become much cheaper for US-sponsored schemes to go down a traditional route. Going back to the comment about peoples’ views changing, there is more talk these days about surpluses and what schemes should do with them. Remember, these things will go against you again, so if you have a surplus, spend it as quickly as you can to secure benefits.


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