More than half (51.6 per cent) of defined benefit (DB) pension schemes view regulation as the greatest risk to their endgame strategy, according to research from Hymans Robertson.

The consultancy’s State of the Nation paper, part of its Excellence in Endgames hub, showed that aside from regulation, schemes identified investment risk (25.8 per cent), longevity risk (19.4 per cent), and sponsor covenant (3.2 per cent) as other key concerns in pursuing their endgame strategies.

Additionally, the report showed that among those considering running on as an endgame option, the most popular timeframe was five to ten years, selected by 59.3 per cent of respondents.

This was followed by 18.5 per cent of respondents who said 20 years or more was the timeframe they are considering committing to, while 14.8 per cent said zero to five years and 7.4 per cent said 10-20 years.

The report also revealed mixed opinions about what factors are most likely to drive endgame decisions, as 36.3 per cent said sponsor views and appetite, while 25.3 per cent said it was having sufficient flexibility to share surplus with the members and/or the sponsor.

Other respondents also highlighted scheme size (15.4 per cent), sponsor covenant (14.3 per cent) and views over governance and flexibility (8.8 per cent) as factors most likely to drive endgame decisions.

The research also explored attitudes toward surplus allocation, with the majority (72.2 per cent) suggesting it should be shared between both the company and the members.

Just over a quarter (25.9 per cent) said it should go to the company alone, while 1.9 per cent said that only members should benefit.

Hymans Robertson said that with the progression of the Pensions Schemes Bill through parliament, the new legislation is set to make run-on and surplus sharing between sponsors and scheme members easier. 

“With the long-awaited Pension Schemes Bill published last month, and the second phase of the government’s Pensions Review launched earlier this week, there appears to be no slowdown of innovation, choice and flexibility,” Hymans Robertson head of DB scheme actuary services, Laura McLaren, said.

The research also questioned respondents about whether, since the competition of Clara's first transaction, their view on the suitability of superfunds has changed. In response, 80.2 per cent said it had and that they now consider superfunds to be a viable option.

However, there was still scepticism, as 18.8 per cent said their view had not changed and just 1 per cent said their view had changed but they consider superfunds to be a less viable solution.

The firm emphasised DB schemes must take time to assess their endgame plans against the backdrop of the industry and legislative changes over the past few years.

Hymans Robertson explained that as funding levels have improved, the DB market has undergone a “vast and significant” change in the past few years including, consultations on DB surplus, evolving guidance from The Pensions Regulator (TPR), the new DB Funding Code, as well as a change of government, which all provide schemes with things to consider.

McLaren highlighted the “incredible speed” at which the DB landscape has been transformed in the past few years, which has seen the market now offer a range of options that schemes can work towards.

In particular, she noted the “growing movement” for schemes to think more purposefully about surpluses as they become a reality, with rising interest rates and better than expected investment performance.

McLaren acknowledged that with all these factors at play, schemes are now reassessing their endgame strategies and re-evaluating their timeframes and objectives.

While the speed of change is to be welcomed, McLaren emphasised the importance of sponsors and trustees taking the time to work together to think about the impact these changes will have on their own scheme, aims and goals.

The firm acknowledged that its clear buyout is no longer the only endgame choice, as there are now a growing number of available strategies for well-funded schemes.

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