DB schemes need to diversify in ‘slow growth’ landscape

Defined benefit pensions schemes will have to pursue a more diversified strategy to adjust to a “slow growth landscape”, a leading economist has warned.

Speaking at TPT Retirement Solutions DB consolidation event last month, economist Andrew Sentence said that schemes are facing an uncertain investment landscape and must switch to the strategy to achieve long-term security.

It is thought that small and medium schemes will be particularly affected by the challenges, as they may be poorly prepared to deal with the complex investment landscape.

Sentence said: “In order to adjust to a ‘new normal’ slow growth environment, DB schemes are likely to have to fundamentally rethink their investment profiles.

“With stubbornly low interest rates and minimal gilt returns, DB schemes are likely to have to reconsider their investment approaches and place greater focus on pursuing a more diversified strategy to reduce deficits and ensure liabilities are met.”

The warning follows XPS Pensions Group research which found that fiduciary managers have struggled to deliver their 2018 performance targets “following the worst year for financial markets since 2011”.

TPT Retirement Solutions CEO, Mike Ramsey, said: “The benefits of consolidation for small to medium size schemes are clear. There is political will, industry interest and regulator encouragement to capture the benefits of consolidation and improve the chances of members’ pensions being fully met.”

“There are several consolidation vehicles now available, however the Master Trust solution is an option that schemes should explore closely.

“It offers the convenience, cost savings and governance that sponsors and trustees are looking for and, in TPT’s case, the scale to construct the investment options needed to manage risk and volatility, and generate investment returns.”

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