Four out of 10 larger DB schemes are looking for a full buyout within three years, according to new research.
The survey found the overwhelming majority of larger DB schemes were now looking at endgame options, with more than half targeting either full buyout or buy-in.
The research was conducted by the Centre of Economics and Business Research for Legal & General. It found full buyout was the most widely sought endgame, being actively pursued by 38 per cent of larger DB schemes. All of those targeting this option were looking to complete a transaction in the next three years.
A further 15 per cent were planning to implement a buy-in as part of their de-risking objectives.
The survey, covered schemes with an average size of £9bn. L&G says this is a notable increase on a similar survey conducted almost 10 years ago, which found that only 11 per cent of larger schemes were aiming for a full buyout.
The time horizon for schemes looking to implement an insurance arrangement is also accelerating. Almost half (46 per cent) of respondents said their time horizon is shorter than a year ago, by an average of over two-and-a-half years.
A total of 46 per cent of respondents said that they had either already implemented or were currently investigating an investment strategy to target buyout, with a further 15 per cent considering it as a potential future strategy.
Three out of four schemes (76 per cent) surveyed are monitoring their buyout funding level on a quarterly basis.
The research follows a record-breaking 2023 for the UK bulk annuity market, with an estimated £50bn of retirement income secured through buy-ins and buyouts, including five transactions of over £2.5bn.
L&G retirement institutional CEO Andrew Kail says: “The findings underscore the recognition of the stability and security that insurance offers. When we conducted our previous survey in 2015, the market had completed only seven transactions over £1bn, and since then there have been more than 40.
“There are around £1.4 trillion of DB pension scheme assets sitting on UK company balance sheets. Securing these pension promises will be a long-term process and we expect to see a healthy buy-in and buyout market for many years to come. Invariably the best outcomes are achieved through schemes engaging early with advisers and insurers so that they are well prepared and transaction ready.”
LGIM head of institutional clients Mark Johnson adds: “Higher interest rates have led to dramatically improved scheme funding levels, with 67 pre cent of schemes fully funded. This L&G research shines a light on the significant increase in those exploring full buyout, as certain schemes are better placed to lock in their current positions.
“The notable improvement in scheme funding, coupled with progress for DB scheme regulation, has driven a seismic shift in strategy. Endgame solutions are now front and centre of scheme agendas and the trustees we speak to are considering how they bridge to buyout, run-on or both.”
He adds: “All schemes have their own challenges, whether it is managing illiquid assets and scheme surplus or constructing endgame ready portfolios. LGIM and our partners in LGRI are well placed to share investment and insurance expertise to help trustees construct the way forward to an optimal, endgame outcome.”
