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Funding and Journey Planning

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).

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 is 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 you will need 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.

ESG and sustainability integration

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.