More than half of U.K. defined benefit pension plan sponsors say they’d consider ways of securing benefits for their members beyond insurance-based solutions, according to a new survey by Aon.
The survey, conducted during a recent webinar among 330 pension plan sponsors and trustees, asked which long-term strategy options they’d consider for their DB plan. Nearly two-thirds (61 per cent) said they’re open to considering more than one option.
The webinar and survey followed a July speech by Jeremy Hunt, the Chancellor of the Exchequer, which raised options to promote long-term investment in U.K. assets. “Currently, we have a perverse situation in which U.K. institutional investors are not investing as much in U.K. high-growth companies as their international counterparts,” he said in the speech. “While many defined benefit funds are in surplus, their returns are lower than some international peers and some are still underfunded.”
Referring to the more than 5,000 DB plans in the U.K., Hunt said he recognizes the important role insurers play in offering annuity buyouts. “In addition, we will set out our plans on introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new scaled-up way of managing DB liabilities. Having engaged closely with a range of experts, we will launch a call for evidence tomorrow on the role of the [Pension Protection Fund] and the part DB schemes play in productive investment . . . .”
Returning to the survey, 82 per cent of respondents said they’d consider an eventual annuity buyout for their DB plan. However, more than half also said they’re willing to consider running on the pension plan for the long term with a low return ‘self-sufficiency’ target. About a third (30 per cent) of respondents cited running-on the scheme with an investment strategy aimed at maximizing value for pension plan stakeholders, followed by 26 per cent who said they’d consider a commercial consolidator or superfund. In addition, 17 per cent said they’d consider a public consolidator, which could be the Pension Protection Fund.
“Our polling shows a strong desire by schemes to consider a range of options for their long-term strategy,” said Matthew Arends, partner and head of U.K. retirement policy at Aon, in a press release. “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.”