A large number of defined benefit (DB) pension schemes are adopting a 'wait and see' approach to their endgame, according to research commissioned by Brightwell, which found that 41 per cent of DB schemes are undecided on their endgame.

The research showed that a third (33 per cent) of DB schemes are targeting buyout, while 26 per cent are aiming for run off.

Similar trends were seen amongst larger schemes (over £5bn), as 23 per cent are planning to buyout, while 23 per cent are headed for run-off and more than half (54 per cent) are undecided on their endgame.

Barriers could be limiting some endgame options, as nearly half (42 per cent) of schemes said that a high allocation to illiquid assets presents a barrier to their endgame, while 25 per cent cited issues around lack of agreement with the sponsor.

Of those schemes that intend to run off, the majority (86 per cent) said they’ve taken this decision due to the strength of their covenant, while more than half (57 per cent) did not wish to transfer value to insurers.

Other concerns included loss of control (29 per cent) and loss of discretionary benefits (14 per cent).

However, more than half (57 per cent) of schemes confirmed that their surplus currently cannot be returned except on wind-up, whilst 22 per cent were unsure, and only 11 per cent currently have the ability to access surplus.

The government is currently consulting on plans designed to help make DB surplus extraction easier, as part of its ongoing efforts to encourage greater pension investment in UK growth.

Despite this, the research found that even if the government change the rules to make the return of surplus to employers easier, 70 per cent of schemes will not change their investment strategy – and just one in ten would stay invested in growth assets for longer.

The research also covered broader concerns facing pension schemes, revealing that cyber security was the top concern for nearly half (48 per cent) of schemes, followed closely by the growing regulatory and reporting burden (44 per cent).

Commenting on the findings, Brightwell CEO, Morten Nilsson, said: “With so much change, it’s not surprising that DB schemes are taking a ‘wait and see’ approach to their endgames.

“The past 18 months witnessed the first superfund transaction, as well as a range of new governance and fiduciary management solutions.

"While the industry mulls over the role of growth assets in the Mansion House reforms and productive finance agenda, endgame options are diversifying. As such, it is probably wise to remain open-minded.

“When it comes to buyout, it seems that many are beginning to question whether it remains the ‘gold standard’ or whether they risk ‘selling the family silver’ instead.”

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