A significant proportion of defined benefit pension schemes have yet to set their long-term funding targets, according to findings from Barnett Waddingham, part of Howden.
The research surveyed 50 professional trustees of DB pension schemes, and found that progress varies considerably by scheme size. For instance, almost two-thirds (63 per cent) of small DB schemes have set a long-term funding target.
Larger schemes, however, are likely to still be considering their long-term funding targets. Half (50 per cent) of medium-sized schemes have set their targets, while 46 per cent of large-sized schemes and just 36 per cent of very large-sized schemes have done so.
Ian Mills, partner and head of DB endgame strategy at Barnett Waddingham, says: “DB Trustees now have a much wider range of endgame options than they did just a year ago. Where buyout was once the default for schemes of all sizes, the market is becoming far more varied, particularly in the wake of the Pension Schemes Act.”
“The high percentage of schemes yet to formalise their long-term funding targets reflects a market in transition, with trustees reassessing strategy as new options have emerged. Many are now deferring longstanding plans to buy out as soon as affordable and considering running on beyond full buyout funding, while alternatives such as DB superfunds are becoming more viable alternatives.”
When it comes to achieving their schemes’ endgame objectives – whether buyout, run-on, consolidation or otherwise – trustees expect this to take several years. Average expected timeframes varied significantly, from 5.8 years for small schemes, to 9.3 years for large schemes. Just over half (51 per cent) of large schemes expect it to take between 10 and 15 years to achieve their objectives.