Investment planning is an “increasingly influential” element in steering UK defined benefit (DB) pension schemes to successful risk settlement solutions, Aon has said.

The firm suggested that as more UK schemes of varying sizes move to buyout or other insurance-based approaches for securing members’ benefits, it has become increasingly clear that preparatory work on scheme assets was vital for achieving the best results.

Aon investment partner, Lucy Barron, said that the importance of preparation by schemes before a risk settlement project had always been clear, but could not be emphasised enough.

She said this was not just in the interests of efficiency but in providing the best possible solution for members, suggesting schemes should always have a clear plan when approaching the market, especially concerning scheme assets.

“If you minimise time spent on a deal and any slippage in the timings, there’s less chance for market events and movements to knock a project off-course,” she added.

Aon acted as an investment adviser on three large UK pension scheme risk settlement transactions: RSA, Boots, and Telent.

These transactions involved complex illiquid and legacy assets that had to be managed down for the transaction to take place, and Barron said that Aon’s approach to these deals was based on ensuring the assets were ready well before the actual transaction.

“In many of these transactions, but particularly the most complex, it’s about seeing the art of the possible with insurers and establishing the best way to manage complex risk to minimise cost, market risk and ultimately deal execution risk,” she said.

“Getting schemes’ assets into shape is one of the key elements in a transaction’s ultimate success.”

Adding to this, Aon investment partner, Ross Mitchell, said: “More broadly, investment planning to support a settlement project cuts across so many areas.

“That crucially includes in the lead-up to a deal, where aligning assets to insurer pricing models helps reduce volatility.

“It then takes in the process of selecting an insurer, where negotiating bespoke price-lock portfolios can be a significant differentiating factor, and then includes the execution and transition process, where the potential for cost saving can be significant.”

He emphasised that "strong" insurer engagement was an “essential ingredient” to obtaining the best outcomes, as in such a busy market, it was “vital” to have a clear strategy and governance as insurers were increasingly prioritising schemes that were the best prepared.

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