More than one in five UK pension schemes are targeting an insurance buyout as their endgame solution, up from just over a third (35 per cent) a year ago, industry research has revealed.

According to the survey from Janus Henderson and Mallowstreet, buyout was even more popular amongst smaller schemes, as over half (56 per cent) of schemes under £1bn were targeting an insurance buyout.

The survey, which gathered insight from over 160 trustees and pensions professionals, also found that 79 per cent of schemes are over 90 per cent funded, irrespective of whether their endgame is buyout or low dependency.

However, it found that buyouts are becoming increasingly popular among schemes with weaker sponsors, highlighting this as demonstration of the "significant role" they play in responding to regulatory pressures.

Indeed, increasing regulatory complexity was cited as a key challenge by pension professionals, alongside concerns around the greater legal responsibilities and a lack of clarity around the environmental, social and governance (ESG) impact.

In particular, the survey found that the majority (82 per cent) of UK trustees find the growing regulatory complexity of pensions challenging.

In addition to this, only a third of all pensions professionals were satisfied with the new single code of practice and defined benefit (DB) funding code, while satisfaction with ESG requirements fell from 48 per cent in 2021 to 35 per cent in 2022.

Cost concerns were also a key focus, as 29 per cent of all schemes said that setting performance and value for money objectives for providers is the second most important scheme area for improvement, a 15 per cent year-on-year increase.

In particular, the research found that the added operational costs of ESG implementation, including time and resources, remained the top challenge for 57 per cent of schemes, a 9 per cent year-on-year increase.

Furthermore, more than half (53 per cent) of pensions professionals said there is insufficient reporting from investee companies themselves, leaving half of all schemes exposed to the persistent challenge of greenwashing.

Member communications were also highlighted as a key focus, with two-thirds of defined contribution (DC) schemes in the UK stating that increasing member engagement is among their top challenges, while 86 per cent plan to use more inclusive language in their member communications in particular.

Trustees also raised concerns around the inadequate savings and insufficient contributions in DC schemes, with over half (53 per cent) of DC schemes suggesting that increasing the minimum auto-enrolment contributions would have the biggest impact on DC pension outcomes, up from 36 per cent in 2021.

Janus Henderson head of UK institutional, Anil Shenoy, highlighted the results as demonstration that the pension industry is experiencing “significant change across both the DB and DC landscape with trustees needing to deal with numerous challenging issues”.

“The insurance buyout is becoming more popular as an endgame strategy and this trend is likely to continue following the improvement seen in many schemes’ funding positions over recent months,” he continued.

“However, the repricing of liquid corporate bond markets means more opportunities to construct a low dependency portfolio which can be useful if schemes need time to get “buyout ready” or if there are capacity constraints in the insurance market.”

““The increase in regulatory complexity in the UK pensions industry comes at a time of greater economic uncertainty,” Mallowstreet CEO, Stuart Breyer, added. “Having access to timely and relevant information is business critical for both trustees and asset managers.”

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