Companies should engage with their defined benefit (DB) pension scheme trustees to avoid a sub-optimal endgame strategy, Hymans Robertson has said.

Research from Hymans Robertson found that nearly a third (30 per cent) of companies view planning for their defined benefit (DB) pension scheme’s endgame as their number one DB priority over the next few years.

The firm suggested that the speed of change within the pensions market is leading more schemes to review their end game strategy, with nearly three-quarters (70 per cent) having done so in the past twelve months.

Of those that have reviewed, 90 per cent have started formalising their plans as a result.

However, Hymans Robertson warned that companies could be at risk of a sub-optimal endgame strategy if they don’t engage with their scheme trustees, noting that a recent survey found that nearly half (40 per cent) of industry professionals think that sponsor opinion is the main driving factor when choosing endgame strategy.

Given this, it highlighted early engagement and flexibility of strategy as two key considerations that all DB schemes should follow to make the process straightforward, arguing that a unified approach is key to a successful endgame strategy.

“With such a large proportion of companies seeing endgame as their key priority, it’s important that the sponsor’s views are taken on board and will sit at the heart of all endgame planning," Hymans Robertson head of corporate DB endgame strategy, Sachin Patel, said.

“Given how quickly companies are taking action with their endgame plans, we would encourage that conversations between sponsors and scheme take place on a regular ongoing basis. This will enable good communication and flexibility to sit at the core of endgame strategy."

However, Patel said that it was "surprising" that, of those who have reviewed their endgame strategy in the past year, 44 per cent with a scheme size under £250m are targeting a run-on strategy.

"For these smaller schemes future management costs can be significant, and run-on may not be economically viable," he said, warning that further analysis will be key for schemes of this size to truly understand the drag that expenses create.

“The survey also highlighted the importance of non-financial drivers for choosing a run-on strategy, which may go some way to explaining why schemes of this size are choosing not to target a risk transfer settlement," he added.

"For those where run-on isn’t automatically attractive from an economic perspective, a solution that allows smaller schemes to run-on with lower ongoing costs could gain traction in the market.

"Endgame choices are not black and white, and bringing together all factors – both economic and opinion of key stakeholders – is crucial for an effective endgame strategy.”

---