The majority (67 per cent) of pension scheme trustees expect UK pension schemes to adopt lower return objectives for longer to reach their endgame, research from the Pensions Management institute (PMI) has revealed.

The research, undertaken in association with Schroders Solutions, also found that a little over half (52 per cent) of respondents said that they would reassess their investment governance model as they approached endgames.

Guaranteed minimum pension (GMP) equalisation was cited as the main major hurdle to buyout, identified by 30 per cent of trustees, while over a quarter (28 per cent) had concerns over insurer capacity constraints, and 27 per cent cited issues with data quality.

Following the UK's market stresses in late 2022, the survey also found that one-third of trustees felt that, while their investment governance model provided necessary support, there was still room for improvement.

In particular, almost half (48 per cent) said they would review the operational aspects of their investment strategies, such as dealing frequencies and settlement periods.

Trustees' main priority in relation to their liability-driven investment (LDI) strategies, meanwhile, was increased reporting on leverage and liquidity, as 32 per cent of trustees admitted that their scheme underestimated its liquidity needs prior to the gilts crisis and was now looking to reduce its allocation to illiquid assets as a priority.

More broadly, the survey identified several environmental, social and governance (ESG) challenges, suggesting that schemes with assets under £1bn are "heavily reliant" on their asset managers and investment consultants to meet the growing array of ESG requirements.

Indeed, over three-quarters (76 per cent) of trustees of smaller schemes needed extra support in order to comply with sustainability obligations, compared to 38 per cent of trustees on schemes greater than £1bn.

In contrast, just 17 per cent of schemes larger than £1bn said they had a dedicated in-house team responsible for meeting the ESG requirements imposed by regulation and best practice, falling to just 4 per cent among smaller schemes.

In addition to this, 17 per cent of schemes said that, although they had a set of stewardship priorities, they did not have a good understanding of their managers’ policies or the actions they take, while only 20 per cent regularly engaged with their managers to ensure their stewardship priorities were in alignment.

Commenting on the findings, Schroders head of UK institutional business development, Ronan O’Riordan, commented: “For many trustees, the pensions landscape has become increasingly complex, either because of regulatory changes, growing ESG requirements or the challenging investment landscape.

“The work of the PMI’s Fiduciary Management (FM) Strategic Forum is very valuable in allowing for the exchange of ideas and perspectives across a broad range of market participants helping us to be better informed to the benefit of our clients. The research released today is the culmination of these discussions for wider benefit.”

Adding to this, PMI director of policy and external affairs, Tim Middleton, stated: “This third report continues the excellent work of its predecessors by investigating the key areas of concern to pension scheme trustees at the beginning of 2023.

"Drawing on the experience of 130 respondents, this survey highlights the principal issues that UK pension schemes will have to address this year.

"Following a year characterised by the cost-of-living crisis, war in Ukraine, the autumn gilts crisis and the aftermath of the brief premiership of Liz Truss, the economic environment presents particular challenges for trustees in pursuit of the nirvana of buyout.

"This report is an excellent summary of the obstacles to effective stewardship of scheme assets and will be vital reading for anyone with an interest in scheme governance.”

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