Journey planning involves setting a scheme’s long-term target, the time to take in getting there and the risk that can be run along the way. In all these decisions, the reliability of the employer covenant (now and in the future) is key. Employer covenant is the ultimate backstop for your scheme’s journey to the full funding of member benefits. It’s all about:
making contributions to speed up the time to full funding;
weathering investment underperformance;
making top-up contributions for risk transfer;
or, acting as a founder-of-last-resort to allow you to implement creative and cost-effective solutions.
What is journey planning?
Journey planning involves setting a scheme’s long-term target, the time to take in getting there and the risk that can be run along the way. In all these decisions, the reliability of the employer covenant (now and in the future) is key. Employer covenant is the ultimate backstop for your scheme’s journey to the full funding of member benefits. It’s all about:
making contributions to speed up the time to full funding;
weathering investment underperformance;
making top-up contributions for risk transfer;
or, acting as a founder-of-last-resort to allow you to implement creative and cost-effective solutions.
We believe that an understanding of employer covenant’s affordability, visibility and reliability can be invaluable as you choose your path to a Long-Term Funding Target (LTFT) and the level of that target itself.
All our covenant advice includes specific conclusions to support your journey planning and setting a LTFT, centred around:
affordability (i.e. near-term support);
visibility (i.e. medium-term certainty of performance); and
reliability (i.e. the long-term potential of the covenant).
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Joined up covenant, funding and investment thinking is needed more than ever before. Our unique approach to journey planning and IRM ensures that covenant and investment work together as your scheme navigates its journey to its “end-game”.
How we can help you in your journey planning?
For many trustees, understanding near-term affordability is crucial. We have extensive experience in reviewing company forecasts and interacting with the Pensions Regulator to help define the art of the possible.
For other trustees, it’s the long-term journey that is critical. Here, as well as providing advice directly based on our experience, we have developed PensionSketch, a unique approach to modelling the future of a scheme that incorporates both sponsor covenant and downside scenarios – critical where the sponsor covenant underpins the journey plan.
As you look to manage risk along your journey, our specialist teams can help you maximise your employer covenant, consider risk transfer solutions and meet regulatory or reporting needs on the way.
Supplemented by training (whether using our PensionSim, our ‘scheme flight simulator’, or picking up bespoke topics), we aim to provide you with all the tools needed to make timely and robust plans for your scheme’s future.
How we can help you in your journey planning?
For many trustees, understanding near-term affordability is crucial. We have extensive experience in reviewing company forecasts and interacting with the Pensions Regulator to help define the art of the possible.
For other trustees, it’s the long-term journey that is critical. Here, as well as providing advice directly based on our experience, we have developed PensionSketch, a unique approach to modelling the future of a scheme that incorporates both sponsor covenant and downside scenarios – critical where the sponsor covenant underpins the journey plan.
As you look to manage risk along your journey, our specialist teams can help you maximise your employer covenant, consider risk transfer solutions and meet regulatory or reporting needs on the way.
Supplemented by training (whether using our PensionSim, our ‘scheme flight simulator’, or picking up bespoke topics), we aim to provide you with all the tools needed to make timely and robust plans for your scheme’s future.
Integration of covenant and investment advice
Successful journey planning is a process of balancing covenant, funding and investment factors to develop a long-term strategy for a scheme. In essence, when you prepare your journey plan, you’re balancing the end point you wish to reach with how you choose to make the journey. Our approach to the integration of covenant and investment advice has journey planning at its heart.
Most pension scheme sponsors face challenges from environmental, social and governance (ESG) factors – climate change in particular. While much thought has gone into identifying sustainable investment, trustees and sponsors are also now beginning to think about the impact of ESG risks on the employer covenant.
We have provided a response to the new Funding Code from The Pension Regulator. Our response focuses on covenant and investment matters, and provides insight into the positive steps taken by the regulator, potential unintended consequences, and the importance of smarter covenant advice.
