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Half of DB schemes yet to set long-term funding targets, research finds

The 'Retirement Runway' research, based on a survey of 50 professional DB pension scheme trustees, found significant differences depending on scheme size.

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Half of DB schemes yet to set long-term funding targets, research finds
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Half of defined benefit (DB) pension schemes are yet to set their long-term funding targets, as trustees consider a growing range of endgame options, according to research from Barnett Waddingham (BW), part of Howden.

The ‘Retirement Runway’ research, based on a survey of 50 professional DB pension scheme trustees, found significant differences depending on scheme size.

Almost two-thirds (63%) of small DB schemes have set a long-term funding target, compared with 50% of medium-sized schemes and 46% of large schemes.

Very large schemes were the least likely to have established a target, with just 36% having done so.

However, the findings suggested the next two years could see considerable progress among schemes that have yet to formalise their plans.

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Among trustees managing medium-sized schemes, 44% said most schemes without a target expected to establish one within the next 12 months.

For large schemes, 32% expected targets to be set within 12 months and a further 22% within 13 to 24 months.

Among very large schemes, 45% expected most schemes to establish a target within the next year.

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Trustees also expect schemes to take several years to reach their ultimate endgame objectives, whether through buyout, run-on, consolidation or another approach.

Average expected timescales ranged from 5.8 years for small schemes to 9.3 years for large schemes, with just over half (51%) of large schemes expecting their objectives to take between 10 and 15 years to achieve.

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Ian Mills, partner and head of DB endgame strategy at Barnett Waddingham, said: “DB Trustees now have a much wider range of endgame options than they did just a year ago.

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“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.”

He added: “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.

“Generally speaking, the larger the scheme, the more options are available, so it’s not surprising that smaller schemes are seemingly ahead in finalising their plans.

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“Trustees will need to weigh scheme size, maturity, sponsor strength and member needs carefully. These decisions cannot be rushed, but the sooner a clear funding target and endgame objective is set, the sooner trustees and sponsors can move forward with confidence.”

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