Smaller pension scheme funding levels hit five times as hard as larger peers

Written by Adam Cadle

Smaller pension scheme funding levels were hit five times as hard as their larger peers, according to new research from Goldman Sachs Asset Management.

In its latest annual review of DB pension schemes of FTSE 350 companies, GSAM said smaller pension schemes (sub £500m AUM) saw an average deterioration in their funding levels of 6.6 per cent over the year, while schemes with more than £500m under management experienced an average decline of just 1.4 per cent.

Across the FTSE 350, the average decline in funding was 1.5 per cent.

“While the aggregate picture over the year represents a fairly benign outcome for UK schemes overall, with more than 40 per cent of schemes suffering a funding decline of 5 per cent or more, complacency is not an option. Some schemes clearly face serious challenges because of their funding positions,” GSAM head of global portfolio solutions for Europe and Asia Shoqat Bunglawala said.

The funding gap between schemes of different sizes was less pronounced in 2014 and 2015, when market conditions were more benign. Periods of significant market dislocation such as in 2016 throw the challenge of managing risk and operating a sophisticated investment strategy with limited assets and resources into sharp relief.

“Trustees of all schemes, regardless of size, face the same risk management challenges in meeting their long-term funding objectives. Our study highlights significant dispersions in outcomes at a time when the FCA is concurrently scrutinising the provision, value and regulation of strategic advice,” GSAM head of UK and Irish institutional business David Curtis commented.

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