Preparation is the “secret ingredient” to ensuring a smooth journey to and through the defined benefit (DB) pension endgame, Legal & General Investment Management (LGIM) has stated.

While conducting a session at the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2021, Legal & General Retirement Institutional head of new business, John Towner, said he was “often asked” by trustees and sponsors what the secret ingredient was following a successful buy-in or buyout.

“The answer is quite simply and always, preparation,” he explained. “It’s what steps did the trustees, the company, other stakeholders take in advance to get their scheme into a position to be able to buyout.”

He noted that he had never witnessed a buy-in or buyout happen by accident: “Sometimes you’ll hear ‘we were fully funded on a buyout basis but we didn’t act quickly enough and we missed the opportunity’,” he added.

“What we never hear is ‘we accidentally found ourselves in a buyout position and we were able to get it done’.”

When thinking about preparing a scheme for a bulk annuity deal, Towner argued that it was “not rocket science”, and it was all about being clear on where the scheme wants to get to, understanding where it is on that journey, and establishing a plan of action and the governance framework to make adjustments dynamically.

“In short, it’s about having a plan and it’s got to come together,” he noted.

Towner explained that if a scheme was targeting self-sufficiency or some kind of run-off, but the focus was changing to something low-dependency or getting to buyout, then it was crucial not to transition too quickly and end up stalling part-way through the journey.

LGIM policy adviser: DB and LGPS, Louise Whatham, added: “Flexible strategy is everything. We see our clients more and more thinking: ‘how do I put things in place that can change? Things have worked out better than expected in many occasions and therefore I need to be able to move things around’.

"This has been particularly pertinent in the LDI sphere.”

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