Insurance buyouts were not the de-risking option of choice among half of the defined benefit schemes polled by a pensions consultant.
Aon estimated half of defined benefit (DB) pension schemes in the UK were looking beyond insurer-based solutions when it came to securing the benefits of scheme members.
The pensions consultant polled attendees who were at a webinar focused on the pensions implications of the Chancellor of the Exchequer’s recent Mansion House Speech.
Aon asked 330 attendees, including scheme sponsors and trustees, which options they would consider for their DB scheme.
Of those who responded 61 per cent, were open to considering more than one option.
When asked what options they were considering 82 per cent of respondents said 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 there was a strong desire to consider a range of options.
"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.”
