New Year’s resolutions
to help you de-risk your pension scheme
23 January 2017
Every New Year I come up with a long list of resolutions. Last year I set myself my biggest resolution yet – to run a marathon. Over the years I’ve learnt that to achieve any resolutions I need to have a plan. To have any chance of finishing the marathon I had to break the journey to my goal into a few smaller resolutions, such as first running a half marathon and losing some weight.
As we enter 2017 it is the perfect time to set resolutions for your pension scheme. Many pension schemes have an ambition to be better funded and reduce risk – often with the goal of one day being self-sufficient. This sounds like a long grind for many pension schemes and, like the marathon, unless the journey to the goal is broken down, the pension scheme may never reach the finishing line.
If you are committed to de-risking your pension scheme then I believe there are three resolutions that you can make in 2017. These will help break down the journey to an ambitious goal and make it more achievable.
Confirm your target and agree (or update) your journey plan
It’s important to work out your destination. You have to be intentional and deliberate. Set a specific long term target - eg to achieve a full buy-out in 2027.
If you already have a journey plan, take time to check it is realistic. 2016 brought a mix of wins and losses for pension schemes and it is worth considering whether your journey plan needs updating.
You can use your agreed target to help you make other decisions. Be sure that any actions you take should help you get closer not further away from the target.
Measure the risks you are currently running
In order to manage risk over time, you need to measure it robustly. Invite a de-risking consultant to attend a trustee meeting. They can give you training to ensure you understand your risks and how to reduce them.
Tools such as LCP’s longevity measuring tool (LCP LifeAnalytics) and real-time monitoring solution (LCP Visualise) help quantify the various risks you face, including longevity risk. You can then make informed decisions on what risks to address first, and how.
Prepare to transact
Appoint a de-risking adviser and ask them to help you iron out any potential issues now. You will be better placed to take advantage of opportunities when they arise. There is a lot you can do with your adviser to prepare you for the future. For example, if you are seeking to remove longevity risk then putting time and effort into detailing a benefit specification document and cleansing your data will stand you in good stead to transact with an insurer in the future.
As January 2017 draws to a close have a think about your pension scheme. Break down your de-risking goal into smaller targets. Decide on your destination and use this to help make decisions. And, don’t be afraid to ask for advice at an early stage – for most it’s a marathon and not a sprint.
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