As the industry’s trend-setters, the approach taken by the UK’s largest schemes will be of keen interest to the wider DB universe, as the industry contends with the new challenges presented by the recent crisis
Our annual analysis of the UK’s largest defined benefit (DB) pension schemes is now available. As the only research of its kind, this year's report provides an overview of the progress of these large schemes prior to the Covid-19 crisis. The recent market turmoil will vary in its impact depending on each scheme’s funding strategy, but we expect very few schemes to emerge unscathed from this crisis. The need for regular monitoring and expert strategy advice remains crucial.
Key big DB scheme statistics
of schemes are now closed to the future accrual of benefits versus 33% five years ago
of schemes were in surplus on an accounting basis – a significant increase from 31% two years ago
of schemes experienced a decrease in transfer value payments
of deficit reduction contributions were in excess of £100m compared to 24% last year
of assets were allocated to equities in our survey – a further fall from 16% in last year’s survey
DB endgame journey planning
Prior to the Covid-19 crisis, the Pensions Regulator’s consultation on a new DB funding code was the big industry news. While this has clearly taken something of a backseat during the current crisis, this will be pushed back onto the agenda over the coming months. DB endgame journey planning will once again be a key focus for companies and trustees.
“Once a semblance of normality returns, the thoughts of companies and trustees will turn again to how to manage their long-term pension scheme strategy. They will see the DB pensions landscape change once again.”
PAUL HOUGHTON, PARTNER
The changing DB pensions landscape:
- The decline of final salary DB schemes continues, with over 50% of the schemes analysed now closed to the future accrual of benefits.
- Prior to the current crisis, the large schemes experienced good improvements in funding levels. Recent financial market volatility will have had a varying impact depending on investment strategy, but a lot of schemes will see the endgame pushed back.
- Our data shows a significant fall in the level of transfer value payments made from the UK’s largest schemes, suggesting the DB transfer market might have reached its peak.
- Although our survey showed a fall in the level of deficit contributions, the shifting focus to the endgame may require companies to step up contribution levels.
For all schemes, setting an appropriate endgame strategy, which strikes the right balance between the level of asset de-risking, employer contributions and benefit settlement options, should be the key focus for companies and trustees in future funding discussions.
Tate & Lyle: a journey plan in half the time
Our actuarial, investment and specialist bulk annuity advice centred on Tate & Lyle's £1bn+ UK DB pension scheme. Discover how we secured all members’ benefits with a bulk annuity insurer, successfully de-risking the scheme seven years ahead of plan.Read the case study