Over three-quarters of DB pension trustees set to revisit journey plans

More than three-quarters of defined benefit (DB) pension trustees believe it is necessary to revisit their journey planning now endgame is in sight following the recent strong funding progress, according to the latest UK Fiduciary Management Survey.

The survey, conducted by Schroders Solutions in conjunction with the Pensions Management Institute (PMI), stated that many schemes were close to their endgame as funding had improved since the lows of March 2020.

DB scheme funding has been ‘buoyed’ by strong growth markets and declines in liability values, with the Pension Protection Fund (PPF) 7800 Index reporting funding level improvements of 13 per cent between March 2020 and the end of 2021.

The survey also found that two-thirds (66 per cent) of trustees believed that schemes will need to consider options other than buyout as their long-term funding goal, despite buyouts “becoming more affordable” and predictions of a record year for de-risking deals.

Almost three-quarters (70 per cent) stated that schemes should reassess their engagement models as they approach endgame, which the report described as a “call-to-action” for investment consultants and fiduciary managers to ensure their endgame strategies, solutions and services meet schemes’ needs for the final leg of their journey.

As schemes approach endgame, more than half (56 per cent) of respondents said they favoured using illiquid assets, which can also form a “long-term key strategic component” for schemes targeting low dependency.

The survey also found that environmental, social and governance (ESG) factors and climate risk have “risen to prominence” on the trustee agenda, with 67 per cent of participants believing that trustees should be setting ‘climate milestones’ to outline how their investment strategy is expected to evolve.

Furthermore, almost half (49 per cent) of trustees felt that schemes should divest from managers with low ESG and climate scores, while 26 per cent opposed divestment.

Commenting on the report’s findings, Schroders Solutions head of fiduciary management business development, Ronan O’Riordan, said: “Many of the issues we identified over the past 12 months, were again key focuses for trustees looking ahead, with sustainability, illiquid assets and long-term funding at the top of the agenda.

“Today’s 2022 survey findings will not only help trustees plan and prioritise but it will also help Schroders Solutions understand how best to work with them to develop solutions and services that match their changing needs.”

PMI CEO, Gareth Tancred, added: "Our research shows that many trustees can now rethink their journey plans after a bumper year in investment performance and scheme funding.

“While some will be looking to secure buyouts in the coming months, other trustees are looking at self-sufficiency as a long-term goal. The research also highlights the growing appeal of illiquid assets to helping trustees to smooth their funding journey."

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