Endgame Planning

Endgame is reaching a point where the provision of full benefits to the members is no longer at the risk of the principal employer’s continued support.

Employers and trustees should have a plan in place to reach their endgame. Depending on objectives, commercial plans and affordability this plan maybe a couple of years but could stretch out beyond 20 years. There are different endgame options:

Buyout – The simplest example is where all the scheme benefits are secured with an insurance company – a buyout. This is an expensive option and many schemes are still some way off having enough money for this and others may simply not be willing to pay the high premium for this required by the insurers. Atkin Pensions can help this become affordable through liability reduction strategies, benefit conversions and policies that allow deferred premiums.

Superfunds/Consolidators – A new development is an offering where schemes can pass their assets and liabilities to a superfund. The link with the employer is severed and so they no longer have any responsibility for the scheme. The superfund is expected to require schemes to be funded to around 85% of buyout cost and this may require a lump sum being paid by the employer to reach this. Some trustees will be concerned
that if the superfund fails and benefits not paid in full yet the employer continues to trade the decision to move to superfund will be questioned. We, therefore, see this as an option where the employer is very weak yet the scheme is well funded.

Self sufficiency – this is where a scheme reaches full funding and does not require growth assets such as Equities to keep full funded. This means they can invest in assets that track the liabilities they need to pay and so the chance of them having to go back to the employer to ask for more money is very low. The employer stays connected with the scheme but the trustees just run it without cash support from the employer. The assets needed to reach this position are lower than the Superfunds and buyout. We have a solution called Cashflow Driven Investment “CDI” (other firms have this as well) where this position can be reached at say 70% to 80% of the buyout. Schemes could run like this for many years and perhaps buyout in the future.