Consolidators could be a more popular future path for DB pension schemes seeking to exit the PPF’s assessment process, according to a survey.
A survey of trustees of 100 UK corporate defined benefit (DB) schemes revealed enthusiasm for superfunds.
Three in five respondents (61%) to a State Street Global Advisers (SSGA) survey said that they think superfunds will provide better member outcomes than insurers for schemes coming out of Pension Protection Fund (PPF) assessment.
In March this year, Clara Pensions took on the £600m Debenhams Retirement Scheme, taking it out of PPF assessment and restoring members’ benefits that had been reduced since the company went into administration in 2019.
Endgame options such as superfunds and capital-backed journey plans were favoured by 17% of survey respondents, although 45% of trustees said that they had little to no knowledge of capital-backed journey plans.
At the Pensions and Lifetime Savings Association’s October conference, SSGA’s head of liability-driven investment Jeremy Rideau asked an audience about the future of superfunds.
Nearly half (45%) said that they thought superfunds would help schemes with “weak or uncertain sponsor covenants”, which is a similar result to that found in SSGA’s trustee survey.
“We have heard about superfunds a lot in the last two to three years, and for the first time we see over half (55%) say that they expect a significant rise in the number of DB schemes moving their assets and liabilities to superfunds over the next two years, a real change,” Rideau said.
LDI manager reviews underway
More than three quarters (77%) of trustees surveyed by SSGA said that their schemes have reviewed their liability-driven investing (LDI) managers, but just 23% have changed providers.
“This might be partly as LDI remains complicated for many pension schemes, and the fear of changing can be quite significant,” Rideau said.
“The main barriers to changing your manager are that a lot of pension plans have been with the same LDI provider for many years, and trustees/pension schemes worry about losing that institutional knowledge,” he added.
The research found that 60% of trustees said a better investment strategy would incentivise them to change managers, with the same proportion also arguing that lower fees are a significant factor.
“We need to ask more pertinent questions of managers, focusing on how they operate in stressed events,” Rideau continued, arguing for improved transparency and reporting, while championing daily updates on leverage and collateral sufficiency.
“If you want to know your leverage and collateral sufficiency, you should have that information to hand every single day if needed,” he said. “You’re then in control, and you know what's happening without having to email your relationship manager.”
Further reading
Superfund Clara takes Debenhams scheme out of PPF (14 March 2024)
Trustees increase focus on endgame planning (28 August 2024)
How LDI managers are getting ready for the rest of 2024 (30 September 2024)
