Half of DB schemes still to decide LTO
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A large proportion of defined benefit schemes have not set their long-term funding targets, a new survey suggests. The findings by Barnett Waddingham come as higher funding and market innovation have broadened the range of endgame options for schemes.
The research published on Wednesday surveyed 50 professional trustees of DB pension schemes and found that half of medium-sized schemes and almost two-thirds of very large schemes have not yet set their long-term funding targets, though they expect to do so in the next one or two years.
Nearly two-thirds (63%) of small DB schemes have set a long-term funding target, but this drops to 46% for large schemes and just 36% for very large ones.
Depending on scheme size, trustees expect endgame objectives to take an average 5.8 years for small schemes, to 9.3 years for large schemes to achieve. About half (51%) of large schemes expect it to take between 10 and 15 years.
“The high percentage of schemes yet to formalise their long-term funding targets reflects a market in transition, with trustees reassessing strategy as new options have emerged," said Ian Mills, head of DB endgame strategy at Barnett Waddingham, part of Howden.
Many are now deferring longstanding plans to buy out as soon as it becomes affordable and considering running on beyond full buyout funding, while DB superfunds are becoming more viable alternatives, Mills argued. Larger schemes have more of these options available, which explains that they are less likely to have finalised their plans, he added.
“Trustees will need to weigh scheme size, maturity, sponsor strength and member needs carefully. These decisions cannot be rushed, but the sooner a clear funding target and endgame objective is set, the sooner trustees and sponsors can move forward with confidence,” said Mills.
