Isn't Surplus Management the same as Journey Planning?

"Isn't Surplus Management the same as Journey Planning - why do anything different?" 

As a pioneer of the Journey Planning approach within the FM/OCIO industry, and as someone who has shared ideas on DB Surplus Management on LinkedIn and elsewhere, I've recently been asked - "how and why is having a Surplus Management Framework any different to setting a Journey Plan?"

 Indeed, there are some similarities. 

Both Journey Planning and Surplus Management are forward-looking, dynamic governance frameworks that set and monitor triggers for strategic action. 

However there are key areas of difference (see below).

	Journey Planning	Surplus Management
Focus	Generating required returns to grow to an advanced financial position	Balance a return of surplus with member protections
Principal action	De-risk when positionally ahead	Retain surplus to extent needed to support pension benefits
Consequence of error	Minor - a de-risk can be reversed via re-risk	Significant - clawback of previously released cash, external optics
Modelling	ALM return assumptions driven, subjective	Risk focused, more objective
Covenant integration	Incidental	Fully Integrated

Consider the consequence of error i.e. making the "wrong decision". 

In the case of a Journey Plan, an action taken to reduce risk can often easily be reversed through re-risking if required.

However, in the case of too much surplus being paid away, the consequence could be severe - an inability (in extremis) to recoup money from a weakening sponsor, or the optics to the outside world of paying away a surplus on one hand only to have to request it back a short while later. 

Similarly, turning back can be a challenge on a motorway.

Boards that confuse Surplus Management with Journey Planning could be heading into difficulty. 

Our #SurplusManagementFramework recognises that: 

💡 these decisions have a greater consequence of error

💡so require greater objectivity and a deeper risk focus 

💡that is fully integrated with the prevailing view of corporate covenant. 

Contact us to find out more. 

#UKPensions #RiskManagement #DeeperThinking