A change in key trustee or company stakeholders could “significantly” impact a defined benefit (DB) pension scheme’s endgame investment strategy, Hymans Robertson has warned.

The consultancy argued that a personnel change could transform the objectives the DB scheme was trying to achieve.

In its latest update to its Excellence in Endgame series, the firm outlined several scenarios, including change of stakeholder, sponsor covenant and fluctuations in the cost of delivering endgame, that could change the original endgame plan.

The firm reiterated the need for a DB scheme’s endgame target to be matched to the correct investment strategy, allowing for a change and potential pivot.

It argued that it was "vital" to have an established decision-making framework in place to build resilience and flexibility, with changes likely to incur in two ways.

These two ways were a pivot to buyout for those schemes currently running on and a change to run on for schemes currently planning on buyout. 

Hymans Robertson senior investment consultant, Ben Fox, said: “While many DB schemes may have detailed plans for their endgame journey, few consider an alternative and have plans in place if a significant change – to team, to budget, or to regulation – takes place.

“Confidence in the original endgame plan can only be improved by building in ‘what-if’ assumptions if circumstances are to change.

“Our paper provides insights into what must be considered to allow schemes to smoothly implement a change, if and when, needed.”

The firm emphasised that in certain circumstances, DB schemes may choose to change from run on to buyout and acknowledged that this would impact a number of “key” areas, including the level of liquidity, the type of assets held by the scheme, the quality of the member data and longevity risk.

“Setting an investment strategy under the assumption that buyout could happen at a future point will, by default, lead to a more buyout focused plan,” Fox added.

“However certain considerations must be accounted for, for example, illiquidity concerns, to ensure sufficient flexibility if buyout is to become an option at a future date.

“Having this built into the investment strategy from the beginning, and liability data in a place where it is buyout ready, gives confidence to stakeholders that this could be quickly used if needed.

“This may reduce the funding buffer that needs to be held before distributing surplus to stakeholders under run on in the meantime.”

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