As professional trustees, we bring essential skills to all defined benefit (DB) pension schemes and particularly during endgame transactions. This was a hot topic at our ‘Endgame Solutions Conference‘, where myself, Becky Wood, Ben Salmons and Mark Johnston discussed our experiences and insights, alongside the session’s chair, Joanna Carter from XPS.

A busy year

In 2023 and continuing into 2024, we have managed lots of endgame transactions at Vidett, particularly at the smaller end of the market, where many pension schemes found themselves in better funding positions due to the rise in gilt yields.

Whilst smaller schemes have found it more difficult to attract insurer attention in a competitive market, all the schemes we worked with that were ready to insure successfully completed their transactions.

Benefits a professional trustee brings to a risk transaction

As professional trustees, we’re skilled at building and managing strong, trusted relationships. We understand the market and meet regularly with insurers and advisermarkets – we are able to help co-trustees and sponsors to navigate the market, ensure the right adviser is appointed and to provide leadership throughout the risk transfer process.

Our expertise at Vidett ensures challenges that could otherwise have delayed the project are carefully managed and pension schemes are supported and guided throughout the transition. This is demonstrated perfectly in our recent buy-in case study.

Choosing an insurer

As demonstrated in our live poll at the #VidettESC (shown below), price is usually the key factor when choosing an insurer, but there are several others that tend to be considered, including:

• the insurer’s brand
• existing relationships with the scheme or sponsor (e.g. buy-in or defined contribution (DC) scheme)
• member experience
• ESG factors – generally all insurers are sophisticated & further ahead than many schemes in this area
• business model and ownership structure of the insurer

The process of moving from buy-in to buy-out is getting increasing attention and we think there is a real opportunity for insurers to break out from the pack and demonstrate an efficient, transparent process.

Managing member experience and outcomes

Most members pay little attention to the transaction, provided they receive what they are owed.

It is vital, however, that trustees remember the needs of members throughout the process. Member nominated trustees can add real value at this stage. Whilst members may not have many queries about the transaction itself, there will be extra administration requests for transfers and retirement quotes to be factored in.

Doing things differently

Capacity is a constraint in several areas and the industry could work together better to solve this, particularly in relation to small schemes and the challenges of the different insurer streamlined processes. For example:

• The post buy-in phase can be a real slog – it would be helpful for insurers to commit a bit more to complete the transaction rather than chase the new one.
• GMP equalisation is a massive resource drain. Pipelines for this work for advisers are huge – can the insurance market take the problem away or standardise it in some way?
• Pensions dashboards are looming and we’re seeing eye-watering fees for readiness and connection. Pension schemes buying in in the next 6-12 months won’t have bought out before their staging date. As insurers will be connecting anyway, can dates be bought forward or subcontracted so the scheme and sponsor are not taking the hit for dashboard connection for only a few months?

We have facilitated a working group  to look at how, as an industry, we can work through these issues. We’d be interested to hear any firms who aren’t currently in the group who are keen to bring their views and expertise to this working party.

Selecting a risk transfer adviser

Trustees need to ensure the adviser is the right fit for their pension scheme, in terms of their expertise, ability to handle deal complexities, timelines and attract insurer interest. Vidett benchmarks advisers’ proposed scopes and fees, taking the work out to tender when there could a better solution for the scheme than automatically looking to the current actuarial or investment consultant.

The best adviser for a transaction will vary from scheme to scheme. It is helpful when adviser firms are clear on the schemes they are targeting, ensure independent trustees understand their streamlined process, set realistic timescales and manage expectations at the start. Trustees need to provide more feedback too. Collaboration and teamwork are vital to success.

As professional trustees, we play an essential role in navigating the complexities of risk transactions in many areas. Building trusted relationships, ensuring transparency and maintaining excellent communication are vital. The capacity challenges in the market, especially for smaller pension schemes, require a collaborative approach to improve the overall process. By focusing on what it takes to achieve buy-out and wind up, and with better industry collaboration, the process can be significantly improved for all stakeholders involved.

If you’d like any more information on overcoming any endgame challenges or our services, please get in contact with James Chalk from our Endgame Solutions team.