Large schemes remain open-minded on long-term objectives
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Despite growing capacity amongst insurers, buy-out is no longer the be-all end-all endgame. In the last 18 months, we saw 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 – and run-off and run-on are back on the table.
Against this backdrop, mallowstreet, in partnership with Brightwell, surveyed 27 UK DB schemes over £1bn in January 2024, gathering perspectives on a total of £300bn in assets under management.
The research reveals that 41% of large schemes are yet to set long-term objectives: faced with a regulatory overload, they feel like they must choose between retaining regulatory and macro risk or transferring value to insurers with a buy-out. However, 86% of schemes targeting run-off explain they would not buy out the liabilities because their sponsor is strong enough. Over half (57%) are concerned about transferring value to insurers.
The Endgame Strategy & Priorities Report 2024 also reveals that cyber-security is the top concern for 48% of schemes over the next three to five years. This is closely followed by the growing regulatory and reporting burden, which is a key challenge for 44%.
Illiquid assets remain an obstacle rather than an opportunity for 42% of all schemes, irrespective of their endgame plans.
“Running a DB scheme has never been more challenging. Pension funds are having to grapple with complex old and new issues, from GMP equalisation to geopolitical instability, stubborn inflation and interest rates, and cybercrime,” says Morten Nilsson, CEO of Brightwell. “Schemes are having to make some big decisions about their endgame strategy against a backdrop of ever shifting regulatory sands. Larger schemes are more likely to be undecided on their endgames and, with a range of alternative options coming to market, remaining open-minded is probably wise.”
What are your thoughts on the growing complexity of UK pensions?
