Almost nine out of 10 trustees of DB schemes expect to decide on an endgame strategy within the next five years, according to research by TPT Retirement Solutions.
It found that vast majority of trustees (98 per cent) had now started preparation for endgame planning — with two in five (39 per cent) expected to have finalised their strategy within then next two years.
Buyout is no longer seen as the default option, with 87 per cent of trustees now saying run-on was an attractive option. Overall trustees are considering a broad range of endgame options. Among the most popular options actively being considered are consolidation into a multi-trust solution (41 per cent), consolidation into a superfund (40 per cent), a capital-backed journey plan (36 per cent), and consolidation into a DB master trust (34 per cent).
Meanwhile a bulk annuity or buyout is being actively considered by 27 per cent of trustees.
On average, trustees expected schemes to be managed as they currently are for an average of 3.64 years before putting put in place an endgame strategy. Only 4 per cent of trustees envision schemes taking over 10 years to reach this stage.
TPT also found that around half of respondents (49 per cent) said they expected to continue managing their schemes as they currently are for between three and five years.
While some schemes continue to strive for a buyout, 87 per cent of trustees surveyed considered running-on as attractive as an endgame solution. A fifth of respondents (20 per cent) considered the strength of the sponsor’s covenant to be the most important factor for considering this option, while the surplus share for members (17 per cent), and being able to return a share of the surplus to employers (13 per cent) were also routinely named as top factors for trustees when considering run-on.
TPT Retirement Solutions commercial director Nicholas Clapp says: “Our research shows that the majority of trustees see run-on as an attractive option and an increasing number are now considering run-on as part of their endgame strategy.
“The evolution of rules governing surplus returns are likely to see increasing focus on this, and the changes which are needed to the scheme’s operating model in order for this to work. In reality, every scheme is a period of ‘run-on’ until a decision is made to transfer the scheme to an insurer or superfund.
“With trustees seeing ever increasing-costs of running the scheme, it is important when designing a run-on solution that the scheme is being run as efficiently as possible, with an appropriate investment strategy to support this. This is where TPT’s DB Connect can offer a valuable structure for trustees by reducing the costs of running the scheme, which supports the financials needed to underpin the decision to run-on, and allows the trustees to focus their time on monitoring the performance of their selected run-on solution.”
