Defined Benefit Study

The Changing Ecosystems of Defined Benefit Pensions

Identifying trends and priorities driving the UK institutional market

The Changing Ecosystems of Defined Benefit Pensions

The UK Defined Benefit (DB) pensions landscape is evolving rapidly, and trustees have a lot of challenges to overcome.

In what is likely to be a more challenging environment for investors and pension schemes to navigate moving forward, now is an opportune time to assess the health of the UK DB market and the key priorities and concerns facing their stakeholders.

We are therefore pleased to present the findings of Russell Investments’ UK Defined Benefit Market Insights study, a new biannual series which will survey senior decision-makers to understand their current views and priorities.

Key findings

Volume 1 – Autumn/Winter 2022

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Inflation and central bank policy

Inflation and central bank policy action are critical issues for pension trustees and sponsors, with 74% of respondents ranking these as their main concern in the next six months. These concerns ranked higher (13% increase) among respondents following the UK mini-budget, compared to those surveyed beforehand. The majority of respondents also cited significant fears over current geopolitical dynamics and their impact, and the prospect of recession.

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The UK mini-budget statement

The UK mini-budget statement has impacted pension schemes current priorities: prior to the government announcement, trustees and sponsors were primarily focused on improving funding levels (68%), managing risks (61%) and ESG (43%). Since the statement, the proportion of respondents identifying derisking towards endgame as a priority has increased by 20% (to 45% of respondents overall). Improvements to funding levels and managing risks fell back by 10% and 5%, respectively, in terms of priority.

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Focus on climate change

More than half of respondents expect to retain their current liability hedge ratios over the next two years, while just over one quarter expect to increase hedging. The proportion of respondents planning to increase liability hedge ratios has fallen 20% following the UK government statement, potentially reflecting the expected lower use of leverage going forwards.

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Liability hedge ratios

Two-thirds of respondents are likely or very likely to increase their focus on climate change over the next twelve months, while over a third have already set a net-zero target of 2050 or earlier.

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