Journey Planning 2019 - Capita Employee Benefits
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Journey Planning 2019
Introduction
Journey Planning, It considers a complete set of actions and plots a route
when done properly, through those to the desired end point, within a defined
(though not necessarily fixed) time.
delivers a fully
working plan of Conversely, Journey Planning is not merely a staged
action that defines de-risking of assets with some liability management (e.g.
a pension scheme’s Transfer Value exercises or Pension Increase Exchanges,
endgame. where benefits can be reshaped or extinguished in a
way that works for members, the scheme and sponsors)
along the way. Nor is a Journey Plan a timetable that
leads to buy-out in, say, 10 years’ time.
The Pensions Regulator (TPR) has said that trustees
need to have a legally enforceable contingency plan in
place and invoke it when thinks go awry. TPR also said
that trustees need to “…assess the scheme’s exposure
to risks and set an acceptable risk management plan
which balances scheme risks along with the employer’s
risk tolerance.”
Having a plan in place
that has been discussed and
agreed by the trustees and the
employer is much more likely
to achieve these aims and be
acceptable to both parties.
Journey Planning 1An Outline Plan
Data
80 Buy-out
cleansing
Covenant
metrics & Early
70 monitoring retirement
excercise
60 Partial
buy-in
Small pots
exercise ETV, PIE
& FRO
50
40
Documentation
review
30
Asset strategy,
monitoring &
triggers
20
10
0
over time
Liabilities
Assets
Journey Planning 2Journey Planning Guide
There is no fixed path, of course, and the plan will encompass measuring appropriate
and relevant metrics, setting triggers for action and how the action will be carried
out (e.g. automatically or with some trustee and employer input/control). As a
result monitoring of potential opportunities to take certain actions can be flagged.
Contingencies for when a downside event happens can also be set. The plan is not
fixed in stone and can be varied to respond to changing external conditions and/or
changing needs and priorities for the trustees and the employer.
Journey Planning starts with the end destination! We guide the trustees and employer
to define a mutually agreed objective or end game which takes account of the needs
and constraints of both parties. The Pensions Regulator has recommended that
trustees set a long term funding target that places low reliance on the sponsoring
employer and high resilience to investment risks. This could be:
• Full funding (100%) • P
remium to insure to
Self – Sufficiency
• De-risked assets cover full benefits
Buy – Out
• None (or very little) • Wind up scheme
reliance on employer • No residual liability
• Some risk remains
• A
ttain sufficient funding • M
any different options
Scheme Consolidation
Scheme Merger
to merge including DB master trust
and Superfund
• R
isk remains with
employer • S uperfunds break the link
with the sponsoring employer
• No/ Very little chance of
full funding
PPF + X
• Insure at PPF+x
• Stay out of PPF
Journey Planning 3Capita’s Approach To Journey Planning
Importantly, the plan must cover all aspects of a pension scheme – including data, benefits,
documentation, covenant, assets and liabilities. It should also be jointly agreed (and owned)
by the trustees and the employer. Finally the plan needs to include tolerances around risk
and deficit levels and should include a framework for making decisions, along with some
governance rules for the Journey Plan.
Including all of these areas makes the plan complete; and with flexibility and governance
incorporated, the plan can adapt to changing circumstances (e.g. election results). By having
a framework for making decisions, pension schemes can react to unexpected events, within
a pre-agreed process and not be caught floundering and reacting “on the hoof”.
For example, plan could state the following:
Actions in the event interest Actions in the event interest
rates drop by 0.5% rates rise by 0.5%
• Obtain estimated funding level • Obtain estimated funding level
•C
heck covenant metrics (there would be a • C
onsider insuring a sub-group of members
pre-agreed process that would state that if interest (some or all pensioners)
rates move there should be a check on how this
• R
eview investment strategy triggers and action
impacts the covenant,either a high level check
if appropriate and not automatic
or something more detailed, depending on the
degree of movement. For example, there could • P
rogress from this point might be to actually
be a positive impact if the employer has debt that insure some members and to review the
can be refinanced at a lower rate). asset triggers
• Progress from this point might be to ask the employer
for more finance, to change the asset
strategy or to put in a contingent asset
So actions can be progressed quickly – either to limit further downside
movement or to take advantage of an up side movement.
Journey Planning 4Major Decisions
With a Journey Plan This will avoid the potential expense of taking one
all major decisions action and then later having to undo it to move forwards
towards the ultimate goal.
connected with
the scheme can For example, without the plan a decision might be
be made against made to fully hedge interest and inflation risk by using
the backdrop of an leveraged LDI (a way of reducing some of the investment
risk but not tying up all the assets in a low yielding
agreed end point strategy). In itself this may be a positive action.
for the scheme.
However if there was a plan in place to aim for buy-out,
and there was a short-term opportunity to insure some/
all pensioners at a favourable price, say, six months after
the asset switch then there would be cost and process
involved in unwinding the LDI.
If the asset switch was made with the backdrop of
a plan in place, then the most effective leveraging might
have been lower, accepting lower hedging, but with the
knowledge that a pensioner buy-in was likely.
Journey Planning 5How We Run Journey Planning Meetings
When we carry out a Journey Planning project
for a scheme, we start by investing time and
understanding the scheme and its background
– liability profile, funding, and investment
strategy. We discuss these with the Scheme
Actuary and the Investment Consultant.
We set-up a meeting involving key representatives from
both the trustees and the employer, as each will have
their own views and objectives – sometimes in accord,
sometimes in conflict.
By having both parties together, often a broad compromise
can be reached, at the very least a mutual understanding.
Some possible actions may be eliminated and some may emerge
as acceptable and beneficial to both sides. We will suggest
a range of possible actions, based on our research and the
discussion in the meeting.
After the meeting we draft an initial action plan.
This captures the points discussed and decisions made in the
meeting. This will then require further discussion in more detail
on some of the areas. Once that has happened, a fully working,
actionable plan can be put in place.
The end result is a better managed scheme, reduced risk, better
risk governance and monitoring, the ability to make quick
decisions and to make them in the context of a long-term plan.
Also both trustee and employer are engaged and working
together better than before.
Journey Planning 6If you would like to know more, please
Contact speak to your usual Capita contact
or contact one of the team below.
Colin Parnell | Head of Bulk Annuities and Senior Journey Planner
Colin Parnell is a Senior Journey Planner with extensive experience of taking trustees
through the journey to buy-out. Colin takes a leading role in the preparation of schemes
for the bulk annuity market and the execution of bulk annuity transactions. Colin’s
longstanding and regular contact with insurers allows him to understand what attracts
insurers to a case in order to obtain the best terms for his clients.
Colin has over 15 years of pensions advisory experience and around 50 bulk annuity
transactions to his name so he has seen most of the different journeys that can be taken
to reach buy-out. Colin has successfully executed many annuity transactions for schemes
including a £100 million pensioner only buy-in transaction and a large number of buy-
outs for small to medium sized schemes. He works closely with a variety of insurers and
achieves very high closure rates on the cases that he takes to the bulk annuity market.
D: 0344 39 11 935 M: 0779 213 5164 | Colin.Parnell@capita.co.uk
Martin West | Scheme Actuary and Senior Journey Planner
Martin advises trustees as Scheme Actuary to 15 Schemes including household names
in Industry and the Not for Profit Sector. Martin also holds appointments advising
businesses on their pension arrangements.
Martin has extensive experience advising on pensioner buy-ins, scheme buy-outs, pension
increase exchanges, enhanced transfer value exercises and flexible retirement options.
Martin’s wealth of experience (over 30 years in the industry) includes advising on the first
buy-out of a final salary pension scheme by a solvent FTSE100 Company in 2001.
Martin regularly gives presentations on Journey Planning; he recently presented to the
Association of Consulting Actuaries and the Professional Pensions Magazine conferences.
D: 020 7709 4926 M: 07974 182271 | Martin.West@capita.co.uk
Chris Richards | Head of PPF Levy Management and Senior Journey Planner
Chris Richards is a Senior Journey Planner with extensive experience of advising trustees
and corporates on de-risking options, including enhanced transfer exercises, pension
increase exchange options, trivial lump sum payments and pensioner buy-ins.
Chris also heads Capita’s PPF levy management team and actively works with clients
to help reduce PPF levy commitments. Chris has over 20 years of pensions advisory
experience and has a number of trustee and company appointments, his advice to
which covers a wide range of areas.
D: 0370 608 0489 M: 0781 733 9883 | Chris.Richards@capita.co.uk
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