Defined benefit (DB) pension scheme trustees should think “carefully” before deciding on insurance endgame options, Hymans Robertson has said, emphasising the potential value of a strategic pause.

In the latest update to its Excellence in Endgames insight hub, Hymans Robertson highlighted the increasing array of options and strategies available for trustees and sponsors,
arguing that these present an "opportunity" to consider the full range of endgame options.

It noted, however, that schemes that can insure are in a very different position than those with significant deficits.

Hymans Robertson acknowledged that, for many DB schemes, insuring benefits has become the norm, with those in a well-funded position set to follow a familiar path, with views being potentially strengthened by recent financial events.

However, it said that ensuring all parties fully understand the resilience of their current position is "crucial" when considering the choices available and the best path forward, suggesting that, if necessary, a strategic pause to evaluate and explore options could be "time well spent".

Hymans Robertson head of alternative risk transfer, Iain Pearce, said: “For trustees and their members, the last five years have been turbulent in a way that no one could have foreseen.

“A pandemic, a global financial crisis, and extreme volatility in the gilts market are just a few of the huge events that no-one saw coming.

“It’s understandable that trustees would like to offer their members the greatest stability they can after such a period of uncertainty and race towards the goals they have previously set.”

However, Pearce noted that since the decision to settle cannot be undone, well-funded schemes face a different set of opportunities and challenges compared to schemes with a shortfall, meaning that taking stock and considering all options is “crucial” to making the best decisions and of huge value.

“Schemes that have reached the point of being able to insure benefits should consider the consequences of following a range of options,” he added.

“Whilst continuing to be able to afford to insure is important, the more fundamental questions are how is the risk of failing to pay full benefits or needing more money from a sponsor, changing between options.

“Stopping to consider different scenarios using our insights hub may lead to trustees adopting a very different approach, for example, deferring insurance or using alternative settlement options.

“We recommend trustees explore these issues and, if needed, have the confidence to take the time to evaluate the range of options available to them and reassess their perspective once they have reached these very strong funding levels.”

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