Almost a quarter of DB schemes unsure on endgame targets

Nearly a quarter (23.9 per cent) of defined benefit (DB) pension scheme trustees are uncertain what their long-term endgame strategy is, according to research from Barnett Waddingham.

The findings suggested that superfunds were the least favoured of endgame options, with only 1.4 per cent of DB trustees considering this option, whilst nearly a quarter (24.6 per cent) were looking at buyout and a further 26.8 per cent were aiming for self-sufficiency.

In addition to this, around two thirds (66 per cent) of trustees stated that they will reach their endgame in more than five years, whilst around 15.6 per cent were unsure how long it would take.

Despite this endgame uncertainty, the biggest cause for concern amongst trustees post-Covid was the burden of legislation of governance, with 36 per cent of DB trustees raising concerns around this.

A further 30.9 per cent, meanwhile, pointed to concerns around funding and investment risk and nearly a quarter (23.5 per cent) cited issues over long-term covenant strength, with around 16.1 per cent of trustees concerned about the employer’s prospects.

However, only 5.1 per cent were taking action to prepare for potential distress.

Indeed, the majority (84 per cent) of trustees believed that their employer covenant was strong or not facing distress, with just 5.1 per cent of respondents viewing the covenant as a concern in the short-term.

Commenting on the findings, Barnett Waddingham partner and head of actuarial consulting, Paul Houghton, said: “It is no surprise that the global pandemic has raised large uncertainties across the market, but despite this dramatic backdrop schemes see the burden of ever increasing regulation as their biggest concern.

"It does beg the question as to whether this concern is driving trustees to distraction as many trustees are still unsure on their endgame strategy, still investigating their longevity reach and don’t know how to mitigate the risk of distress.

“Prior preparation and planning is a priority for schemes as they set and navigate their way along their long-term strategies, whether that is targeting a future buyout transaction or carrying on in a self-sufficient environment.

"Without thorough understanding or a well-thought-out strategy schemes could fall short of their desired outcome.”

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