DB pension planning: begin with the end in mind
Read Barnett Waddingham’s latest thoughts on importance of long-term strategic planning.
I’ve been talking for a while about the importance of long-term strategic planning: thinking about where your defined benefit pension scheme is heading and working backwards from there.
“Begin with the end in mind” you may have heard me say at some point. The Pensions Regulator is now encouraging exactly the same kind of thinking – a move away from seeing the triennial actuarial valuation as a snapshot funding review and moving towards schemes having a genuine long-term plan that endures from valuation to valuation. In other words, long-term solutions for long-term problems. Sounds simple like that doesn’t it?
But what does it mean in practice? What’s the best way to develop and manage your own long-term DB pension strategy?
Well at the heart of every strategy is a long-term goal. I play chess and the long-term goal in chess is clear – capture the opponent’s king before yours is captured. Every element of a chess player’s strategy can then be tested against this goal – does this move make it more likely that I’ll win? If the answer’s yes then it’s a good move. If the answer’s no then you should look for a better move. But how many pension schemes have even articulated what their long-term goal is, let alone test their decisions against it?