The finding came when Aon polled attendees on a webinar focused on the pensions implications of the Chancellor of the Exchequer’s recent Mansion House Speech.
Aon asked the 330 webinar attendees, including scheme sponsors and trustees, which long-term strategy options they would consider for their DB scheme. The majority, 61 per cent, stated that they were open to considering more than one option. When asked what options they would consider, 82 per cent of respondents said they would consider an eventual insurance buyout of their scheme. However, 51 per cent also said that they were willing to consider running-on the pension scheme for the long term with a low return ‘self-sufficiency’ target.
Of the options raised by the Chancellor to promote long-term investment in UK productive assets, the most popular option was to run-on and target pension surplus. Running-on the scheme with an investment strategy aimed at maximising value for scheme stakeholders - including the sponsor - was favoured by 30 per cent of respondents, while 26 per cent said they would consider a commercial consolidator or superfund. In addition, 17 per cent said they would consider a public consolidator, which could be the Pension Protection Fund.
Matthew Arends, partner and head of UK Retirement Policy at Aon, said: “Our polling shows a strong desire by schemes to consider a range of options for their long-term strategy. Considering how active the bulk annuity market is right now, it is perhaps not surprising that the most popular option remains an insurance buyout. It’s clear that many see this as the default approach for discharging pension risk, navigating new forms of volatility and securing member benefits.”
John Harvey, partner and head of Alternative Endgames at Aon, said: “I believe there is untapped value in many well-funded pension schemes, so it’s really interesting to see that nearly a third of respondents would consider running-on their scheme in order to build up surplus over the long term. In many cases, a higher-return investment target over a longer period can unlock benefits for both members and scheme sponsors - if there is appropriate covenant to support the scheme.
“We are already seeing some well-funded schemes adopting these strategies without undue risk. The options that are being explored in the Department for Work and Pensions’ (DWP) call for evidence, such as easier refund of surplus, could make it still more attractive for schemes to run-on with a higher investment return target.”
Matthew Arends added: “Our poll also showed the continuing interest from schemes in commercial consolidation. With that in mind, we welcome the introduction of a permanent supervisory regime for commercial consolidators. However, the ideas in the DWP call for evidence about a potential public consolidator are currently at an early stage and will need careful review before they are added to the DB landscape.
“In order to maximise outcomes for all their stakeholders, it’s vital that schemes consider the full range of long-term strategic options that are available to make a more-informed decision. That may mean having to revisit existing endgame plans, as both the range of viable options and the scheme’s circumstances may have changed significantly over the last year.”
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