A new report from LCP – Chart your own course: navigating the pensions journey – analyses pension scheme approaches to managing risk and sets out a blueprint for trustees to navigate the journey to their end game. The report includes various case studies and examples of what schemes are currently doing, including key data from our risk profiling tool, LCP Sonar and ending with a checklist in the report, for trustees to review their approach to risk management.

Key points made in the report include:

• Whilst it is important to focus on what the long-term funding target is for a scheme the journey can be equally important and should be planned and managed well to maximise the chance of success. Indeed our latest De-risking Survey shows many have a target in mind and some may be closer to their end-game than they think.
• There are lots of different actions trustees can take to effectively manage their risks and each scheme will be in a unique position. Clear advice, joined up across covenant, investment and funding supports trustees take the most effective actions for their scheme, delivering the best results for members.
• Clear journey planning and risk management is essential for a well-run scheme and this is also consistent with the Regulator’s direction of travel. Establishing a long-term funding target and plan is likely to become a regulatory requirement, aimed at encouraging long-term thinking beyond technical provisions and reducing reliance on a sponsor.

Jill Ampleford, Partner at LCP and Scheme Actuary, comments:

“While each scheme and its risk profile is unique, all should have a focus on measuring, managing and mitigating risk to maximise its chances of a successful journey and the best outcome for members.”

“Projecting assets and liabilities isn’t enough; you should understand the range of outcomes and the ability of the sponsor to support the risks taken and, crucially, what you would do when a risk materialises.”

Mary Spencer, Investment Partner at LCP, said:

“LCP has the practical experience and tools to help trustees navigate the scheme’s journey amidst a changing regulatory backdrop and volatile markets. Identifying the target endgame, while mapping out the journey and staying nimble in the face of uncertainty, can be transformational for schemes.

“Covenant strength is the greatest risk facing most DB schemes and a key risk can be the potential deterioration in covenant support over time. With regulatory change on the horizon, now is the time to review your risk management approach.”

Michelle Wright, Partner at LCP and Head of Trustee Consulting, adds:

“Much focus has been given in the past to pension scheme end-games, but less on how to manage the journey to get there. Our report is designed to equip trustees with the tools and practical insight required to navigate the risks and strategic issues to get to long-term target, working collaboratively with their sponsor and advisers through a truly integrated framework.

Our report is the first piece in our “Chart your own Course” series aimed at helping trustees through the pension scheme journey in order to deliver better outcomes for members. Watch out in coming months for further LCP material which will include how to navigate the new guidance awaited from the Pensions Regulator.”