Case study

Using LCP GEARS to provide clarity through difficult decisions

Pensions & benefits Endgame strategy and journey planning Strategic journey planning DB pensions

The background

This client is a large DB pension scheme (c£1bn of liabilities) with a weak sponsor. Following challenging discussions, the trustee concluded that the scheme was running too much risk in the investment strategy: ie in the event of a negative asset shock, the scheme would not be adequately supported by the sponsor.

Our solution


It was agreed that a sub-group of the trustee would work with LCP on the 'heavy lifting' of strategic discussions before reverting back with specific proposals for full board approval.


The trustee set a goal of reaching full funding on a prudent basis within 5 years, aligned with the timeframe to 'significant maturity' for the Scheme and the perceived length of covenant visibility.


The trustee used LCP Triangulate (our stochastic modelling tool) to understand a variety of potential outcomes and their respective likelihoods. A key output was understanding the sponsor’s affordability to pay contributions, so we considered the potential volatility of contributions and the sponsor’s ability to pay them.


The trustee adjusted the shape of investment returns over the remaining period to put less pressure on sponsor cashflow in early years, in exchange for less de-risking in later years. This would be achieved through a material initial de-risking step and then a constant investment strategy over time.


Steps were taken to prepare for the implementation of a de-risked investment strategy through appointing new investment managers for more contractual returns eg asset-backed securities and infrastructure, as well as by incorporating automatic collateral management and diversification of leveraged holdings. This was in place through the LDI crisis in late 2022 and proved extremely valuable to the scheme.


The early stages of transaction preparation could then take place as the scheme started its journey to secure benefits.


The trustee can sleep a little easier knowing that robust decisions have been made and the scheme is taking less investment risk now. The scheme’s funding position has proved resilient through recent market turmoil, and the scheme is on track to begin securing benefits via insurance solutions at the appropriate time.