Half (50 per cent) of all defined benefit pension scheme trustees have a clear endgame strategy in place, research from Standard Life has revealed.
The research, which surveyed 50 DB pension scheme trustees of schemes larger than £100mn, found that, in contrast, 48 per cent still did not have a clear endgame strategy in place.
Standard Life also found, regardless of whether they had a formal endgame strategy in place or not, several key barriers may hinder the ability of schemes to pursue their plans to fully secure member benefits.
Standard Life managing director of DB solutions and reinsurance, Kunal Sood, commented that, while funding level improvements have been welcomed, trustees are still facing “key barriers” when pursuing their ultimate end-game strategies.
“External factors such as the potential for a fall in gilt yields, present a risk to schemes that are not well-hedged, as do challenges around any illiquid asset holdings the scheme might have,” he said.
The most concerning of these key barriers was market volatility, which was identified by 40 per cent of respondents as being a cause of worry.
This was ahead of issues with investment strategy (identified by 36 per cent of respondents), lack of sponsor engagement (32 per cent), and general preparedness for a potential buy-in or buyout (26 per cent).
Trustees also mentioned the Pension Regulator and Department for Work and Pensions’ new DB funding code, which outlines how pension schemes should de-risk and allocate investments towards low-dependency funding by the time of ‘significant maturity’.
This was mentioned by 26 per cent of respondents.
Sood added that, in practice, most schemes are likely to be complying with the principles set out in the code already.
He also stated that: “With the minimum requirement for sponsors to be maintaining full funding for significantly mature schemes, it is possible that sponsor engagement improves and reduces that barrier for trustees.”
Other barriers mentioned in the research were attracting insurer interest, which was mentioned by 20 per cent of respondents, and issues with data, which was mentioned by 18 per cent.
tom.dunstan@ft.com
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