Defined Benefit Study

Improvements in funding levels resulting from market conditions have resulted in a significant number of schemes accelerating their plans focusing on endgame. Almost one-third (30%) indicate that they are now working towards endgame within a shorter timeframe.

This change in timeframes is impacting asset allocation decisions. Schemes are prioritising increases in liquidity to make portfolios as attractive as possible for insurers so that these schemes can move to buyout. However, this raises some challenges in how schemes reduce exposure to illiquid assets such as private equity without having to accept discounts.

The capacity of the buyout market is a concern for pension schemes. One-fifth of respondents identify this as a significant risk.

While ESG remains an important consideration for many pension schemes (specifically the issue of climate change), decision-makers recognise the implications of changing asset allocations. Specifically, the move away from equities and illiquid assets to bonds and cash is impacting schemes’ ability to effect long-term tangible ESG action.

Regulatory volume remains a key challenge for many schemes. Combined with practical operational pressures as schemes seek to position themselves for endgame, some are looking at moving to a sole trustee model to ensure sufficient access to specialist expertise to manage these demands.