Shifting GEARS: key stages to success
Welcome to our hub for strategic journey planning – containing all the resources you need in one place to design, implement and evolve your plan centred around our GEARS+ framework.
A pension scheme's successful journey involves being able to both manage risks effectively and capitalise on opportunities. So what does this mean in practice?
Why should pension schemes have strategic journey plans?
The events of the last few years have shown that it's more important than ever before to have a robust plan for your pension scheme that can adapt to change. In addition to short-term actions, it's important to step back and look at the big picture.
The requirements in the Pension Schemes Act 2021 and those in the new DB funding code are just two reasons why more and more schemes are working to agree longer-term strategic objectives, and designing a plan to reach them.
To us, strategic journey planning means working collaboratively to help our trustee and sponsor clients actually meet their scheme's long-term objectives, not just talk about them, whether those objectives are buy-in, buy-out, consolidation, long-term run-off or another chosen endgame.
At LCP, we are able to bring together expertise across the full suite of journey planning advice, including covenant, investment, pension risk transfer, member engagement and governance. We use our GEARS+ framework to drive forward each step of the journey and make sure our clients receive a truly integrated and joined-up approach.
Our strategic journey planning framework: GEARS+
GEARS+ is the robust framework that helps pension scheme trustees and sponsors turn journey planning discussions into actions, shifting through the gears to achieve your objectives. The last two steps are optional, for those schemes wishing to buy-out and wind-up their scheme.
Click on each stage to explore what it means in practice and what else you could do or consider. If you would like to discuss what they mean in practice for your scheme, please get in touch.
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What this means in practice
Put in a collaborative framework that supports timely decision making and makes best use of advisors.
What else could you do?
Consider setting up a strategic sub-committee with trustee and sponsor representatives and appoint a strategic adviser.
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What this means in practice
Consider the full range of options and realistic timescales - framing decisions in the context of covenant and the level of risk/funding this can support over time.
What else could you do?
Reassess how far away you are from your desired target. You may be closer than you think. Allow for other potential constraints to change, such as illiquid investment run-off.
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What this means in practice
Investigate how you would capitalise on opportunities, as well as your exposure to key risks, including climate change. Understand how these interact with each other and the sponsor covenant, in both the short and long term.
What else could you do?
Speak to a specialist covenant adviser and use tools like Visualise and scenario analysis to frame discussions on risks and opportunities, considering both a trustee and sponsor perspective.
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What this means in practice
Set your investment and hedging strategy to match your target. Understand how member experience could affect the journey and plan data activity around your strategic priorities.
What else could you do?
Undertake a review of your member options and communications. Consider the feasibility of buy-ins or longevity swaps to hedge longevity risk.
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What this means in practice
Monitor progress and opportunities in real time, pre-agree how you will react to change and evolve your plan accordingly.
What else could you do?
Consider making use of online technology and dashboards like Advance, and contingent funding arrangements to help monitor and manage your journey.
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What this means in practice
Approach the market in a smart way, to maximise engagement for your transaction and ensure you get the pricing and terms you need.
What else could you do?
Work with a specialist de-risking adviser who can advise you on feasibility, how to prepare and who will help you get the best outcome for all parties.
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What this means in practice
Complete the required steps to ensure the right protections for members, trustees and the sponsor.
What else could you do?
Pre-empt and resolve any challenges efficiently through specialist communications, data management, project management and upfront planning.
Our key journey planning insights
GET
Get the right governance structure in place. Planning and managing a strategic journey plan will require trustees and sponsors to make important decisions, sometimes in a short space of time. That’s why our framework starts with putting in place a collaborative framework that supports timely decision making and makes best use of advisers.
ESTABLISH
Establish your ultimate objective and timescales. You should consider the full range of options and realistic timescales – the relative cost of different long-term options isn’t static over time, and your constraints and priorities might have changed. Remember all decisions should be framed in the context of covenant; not just current levels of cash requirements and investment risk, but how this support might change over time, and for how long you can rely on the sponsor.
ANALYSE
Analyse what could change your journey. Investigate your exposure to key risks and opportunities, including climate change. It’s important to understand how these interact with each other and the sponsor covenant, in the short and long term. In practice this and the previous step may become iterative, as your understanding of risks could influence where you try to realistically get to.
REFINE
Refine the steps you plan to take to reach your goals. Set your investment and hedging strategy to match your target. Understand how member experience could affect the journey and plan data activity around your strategic priorities.
STEER
Steer your journey dynamically and in a joined-up way. Of course things never go exactly according to plan – so you will need to monitor progress and opportunities in real time, pre-agree how you will react to change and evolve your plan accordingly.
TRANSACT
Transact successfully at the right time. For those whose objective involves insurance or another third-party solution, our advice is to approach the market in a smart way, to maximise engagement for your transaction and ensure you get the pricing and terms you need.
COMPLETE
Complete wind-up efficiently. For those who subsequently decide to wind-up their scheme, we can help you to efficiently complete the required steps and ensure the right protections for members, trustees and the sponsor.
Find out how we have helped our clients plan their scheme's journey and achieve their endgame objectives
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