Setting investment value horizon can increase member outcomes by 15%

DB schemes choosing to run on with the right investment strategy have the potential to improve member outcomes by as much as 15% says Hymans Robertson, as it publishes its latest Excellence in Endgames paper. The firm states that by considering objectives for surplus growth and release, schemes can understand how long they can run on before the economics become unattractive: the ‘value horizon’. It warns that if run-on is the scheme’s preferred endgame option, all stakeholders must work together to agree a value horizon that maximises outcomes.

In the paper, the leading pensions and financial services consultancy outline the importance of considering different investment strategy options, ensuring the choice made reflects the trustee and sponsor’s intentions. By getting this right, its analysis shows that the benefits of selecting run-on can be significant, with an increase of up to 15%. For a £500m scheme, this could potentially increase its surplus value by up to £150m. 

Commenting on the importance of investment strategy sitting at the core of endgame choice, Ross Fleming, Partner, Hymans Robertson says:

“If run-on is the chosen route, the sooner trustees and sponsors agree their objective, the more confidence and conviction you can have in setting an optimal investment strategy that delivers it - while managing key risks. Once an understanding of the value horizon is in place, a full exploration of all options – including private markets and hedging decisions – is essential to get the strategy right.

“The scale of the surplus value that could be unlocked by schemes cannot be underestimated, with an increase of up to 15% available in some situations. A £500m scheme could have the potential for a £150m surplus available to it from running on. This huge monetary uplift provides the perfect opportunity to balance the interests of members and sponsors and provides a clear viable alternative to the buy-out journey.

“Trustees need to challenge their thinking that buyout is the only option and instead consider run-on as a viable alternative. As outlined in our paper, the value horizon sits at the heart of this decision- making and must be regularly reviewed. How long a scheme could run-on for is an important question, but the scheme must regularly test the strategy to ensure it remains appropriate and adapt it from there.”

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