90% of DB schemes have set a long-term funding target

Holly Roach reports...

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Almost all UK defined benefit (DB) schemes (92%) have set clear long-term funding targets, with most focused on buyout or self-sufficiency, according to Aon.

The first chapter of the firm’s 2019 Global Pension Risk Survey, which was exclusive to Retirement Planner‘s sister title Professional Pensions, looked at the funding targets of DB schemes and how they plan to reach their end goal.

It revealed that more respondents (43%) were focused on self-sufficiency as their long-term funding target than buyout (35%).

However, the survey – which runs every two years and questioned 170 industry members – also found that, while self-sufficiency was a target for more DB schemes, the proportion targeting buyout has increased from 27% to 35% since the previous survey.

Head of UK retirement policy Matthew Arends (pictured) said “only time will tell” on whether this target will continue to increase year-on-year and whether it will “remain as attractive as it appears to be in this survey”.

He also suggested there is a question here as to whether some of those who say self-sufficiency is their target, actually see it as an interim step and “in the fullness of time, they will go beyond that and look to go to buyout”.

Though he noted: “Self-sufficiency within the next 10 years looks like the most common target.”

The survey also asked respondents to rank who on the company side takes ownership of DB pensions.

While the pensions manager featured highly with 33% ranking this top, Arends said it was “interesting quite how significantly the chief financial officer (CFO) featured”.

Nearly a third (31%) of survey participants ranked CFOs as top while a quarter ranked them as the second highest.

He said: “This survey is all about pension risk and the risk manager at the company barely features when it comes to responsibility for DB pensions. What that says to me is that DB pensions are such a significant risk for companies that they go direct to CFOs and therefore board level rather than through the risk manager.”

Almost half (47%) of participants said they were aiming to reach their long-term target within five to 10 years. A further 26% said their target was 10 to 15 years, while just 5% said over 20 years. Less than a fifth (16%) said it would be under five years until they reach their target.

A recent survey carried out by Aon revealed 20% of schemes were focused on buyout while 80% were more focused on self-sufficiency. That survey questioned schemes who had completed their valuation between 22 September 2017 and 30 June 2018, while this survey looked at schemes more broadly, hence the disparity in results.