With new regulations expected to come into force requiring trustees to set formal long-term funding targets, the majority of trustees seem to be adopting a ‘wait-and-see’ approach until the rules are finalised.
While just a quarter (24%) of trustees say their schemes have already set a long-term funding target, almost half (47%) expect to set it within the next 12 months. A further 25% say it will happen in the next 12-24 months.
Of those trustees who have set a long-term funding target, for more than half of Professional trustees of DB schemes their long-term funding target is self-sufficiency (51%). Around a quarter said superfund consolidation (26%), and one in five (19%) buy-out via an insurer.
However, of those who say they are targeting self-sufficiency, 70% believe their scheme will ultimately target buyout or consolidate. Taking this into account, it in fact means four in five (81%) expect to buyout or consolidate.
While the majority are optimistic about endgame being achieved, a third (33%) don’t think that buyout is a realistic endgame objective within 10 years. 73% of professional DB trustees agree that buyout is unreasonably expensive.
Bob Campion, Senior Portfolio Manager, Charles Stanley Fiduciary Management comments: “Technical Provisions, Accounting, Solvency, PPF – and now the Long-Term Funding basis. It’s extremely confusing having so many different ways of valuing a defined benefit pension scheme’s liabilities, so it’s understandable that there’s resistance to adding a new one to the list.
“But in our view the latest method is the best one. We’ve been encouraging all our clients to adopt a Long-Term Funding basis – at least informally - for almost 10 years now. It’s quite simply the most sensible and logical way of assessing a pension scheme’s condition and planning for the future.
“So while there’s no need to adopt one formally yet, we believe it’s in the best interests of most schemes to have a Long-Term Funding basis in place and to be monitoring their position regularly.”
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