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Defined Benefit pension schemes taking a ‘Wait and See’ approach to endgames

New research from mallowstreet commissioned by Brightwell, the end-to-end service provider for DB schemes, reveals that large defined benefit (DB) schemes remain uncertain about their endgame.
  • Large proportion of DB pension schemes (41%) are undecided on their endgame
  • The proportion is even higher among larger schemes over £5bn (57%)
  • High allocation to illiquids a barrier for all endgame planning
  • 70% of schemes say that changes to surplus rules would not alter their investment strategy

The Endgame Strategy & Priorities Report 2024 surveyed 27 UK DB schemes larger than £1bn in January 2024 gathering perspectives on a total of £300bn in assets under management.

The research found that 41% are schemes are undecided about their endgame, 33% are targeting buyout while 26% are aiming for run off.

For schemes over £5bn, 54% are undecided, 23% are planning to buyout while 23% plan to run off.

Additionally, 42% of schemes say that a high allocation to illiquid assets presents a barrier to their endgame. Lack of agreement with the sponsor is also a barrier for 25%.

Rationale for schemes that plan to run-off

Of the schemes that intend to run off, 86% say they’ve taken this decision due to the strength of their covenant. Over half (57%) do not wish to transfer value to insurers. Other concerns include loss of control (29%) and loss of discretionary benefits (14%).

Surplus generation is not an objective

More than half of schemes (57%) report that their surplus currently cannot be returned except on wind-up, whilst 22% don’t know. Only one in 10 (11%) currently have the ability to access surplus.

Cyber-security top concern for schemes

The report also questioned schemes about their biggest concerns for the next three to five years.

Cyber-security was cited as the top concern for 48% of schemes. This is closely followed by the growing regulatory and reporting burden, cited by 44%.

Morten Nilsson, CEO of Brightwell, said:

“With so much change, it’s not surprising that DB schemes are taking a ‘wait and see’ approach to their endgames.

“The past 18 months witnessed the first superfund transaction, as well as a range of new governance and fiduciary management solutions. While the industry mulls over the role of growth assets in the Mansion House reforms and productive finance agenda, endgame options are diversifying. As such, it is probably wise to remain open-minded.

“When it comes to buyout, it seems that many are beginning to question whether it remains the ‘gold standard’ or whether they risk ‘selling the family silver’ instead.

Download the full Endgame Strategy & Priorities report 2024


05 / 03 / 2024

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