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
A lot can change in a year. Just over twelve months since the 2022 LDI crisis, Defined Benefit (DB) pension schemes are in a different position, with their priorities, endgame prospects, and asset allocations adapting.
With the landscape of DB pensions changing, it provides an opportune time to take stock of the market and the key priorities and concerns facing industry stakeholders.
We are therefore pleased to present the findings of Russell Investments’ UK Defined Benefit Market Insights study, a biannual series which will survey senior decision-makers to understand their current views and priorities.
Key findings
Volume 3 – Autumn/Winter 2023
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.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.
The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
WHAT’S NEXT
You have investment challenges that we can help solve. We’re helping all kinds of clients all over the world with these challenges, and we’d love to help you too.
we'd love to talk
Simon Partridge
DIRECTOR, HEAD OF UK FIDUCIARY MANAGEMENT