Pension scheme trustees have been encouraged to consider the use of capital backed journey plans (CBJP), after a paper from Hymans Robertson revealed that they are becoming an increasingly key part of the alternative risk transfer market.

Under a CBJP arrangement, schemes are able to access external capital for a set period of time to increase the likelihood that they are able to provide the pension as promised to their members.

In its new paper, A closer look at CBJP, Hyman Robertson suggested that trustees could therefore think of a CBJP as being a bit like fiduciary investment management, but with additional capital underwriting investment returns and with layers of agreed controls and protections for how the assets can be invested.

The firm also emphasised that CBJPs have the chance to increase member security and help schemes to reach their target outcome sooner and accelerate the timeframe to buyout, as well as helping to reduce reliance on the sponsor.

It clarified that these solutions are not designed to end early, and are therefore most relevant for schemes that confident in the strength of the sponsor covenant over this period and do not have a material concern of sponsor insolvency part way through.

However, the firm acknowledged that it is also possible that some of these solutions are structured to be “insolvency remote” and so seek to continue beyond the point of sponsor insolvency.

Indeed, Hymans Robertson noted that there is "significant variation" between providers on how these are structured and key commercial terms.

This may present an opportunity for pension scheme trustees, however, as Hymans Robertson suggested that, particularly at this stage of the market development, there is scope to tailor these structures to address specific sponsor and/or trustee requirements.

It also stated that schemes that do go through this process will find a number of highly engaged providers looking to establish themselves, and the market more widely, and so may ultimately be able to secure some very attractive terms.

Hymans Robertson head of alternative risk, Iain Pearce, commented: “CBJPs are a new way of accessing third-party capital to help secure members’ benefits and reduce the chance that a contribution will be required from the sponsor.

“They can reduce the scheme’s reliance on the sponsor to fund losses, as well as help protect members’ benefits and enable schemes to reach their target outcome faster or with more certainty.

“There’s a growing list of providers now actively targeting transactions, or quietly developing their offers in this area. These cover a range of strategies of different models which could create some opportunities for early movers.

“It’s great to see this market development and we expect an increasing number of transactions using capital backed options in the coming years.

“Trustees and sponsors will become increasingly comfortable using these options to help meet their objectives. They should seriously consider whether CBJPs can help them meet their objectives as part of their strategic reviews.”

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