Defined benefit (DB) pension schemes are struggling to set long-term funding targets, despite pressure from The Pensions Regulator to do so, research from Charles Stanley Fiduciary Management has shown.

Following the new DB Funding Code coming into effect in September, 74 per cent of DB scheme trustees said long-term funding targets had not yet been set across all of their schemes.

This figure increased to 81 per cent of trustees when asked about smaller-sized schemes.

Less than a quarter (23 per cent) of trustees of medium- and large-sized schemes anticipated having a long-term funding target set across all their schemes within the next 12 months, which Charles Stanley said demonstrated the scale of the problem despite imminent regulatory change.

However, the majority of trustees stated that some of their schemes have recently changed their funding targets, with 68 per cent saying they have had at least one of their schemes alter their long-term funding targets over the past 12 months.

More than three-quarters (76 per cent) of trustees’ medium-sized schemes have changed their long-term funding targets, alongside 75 per cent of smaller-sized schemes, while large-sized schemes were less likely to have changed their funding targets at 53 per cent.

When asked about which funding targets they expected to be set by their schemes, 43 per cent of trustees forecast their large schemes to target superfund consolidation.

More than a fifth (21 per cent) of trustees anticipated their medium- and large-sized schemes to target self-sufficiency, while 36 per cent of trustees expected buyout to be the funding target of their mid-sized schemes.

Looking at timeframes to achieving funding targets, 45 per cent of trustees believed it would take their mid-sized schemes more than 10 years to reach their funding targets, despite the average time for FTSE 350 schemes to reach a sufficient funding level being 5.2 years, according to data from Barnett Waddingham.

Almost a third (32 per cent) of trustees believed their small-sized schemes would reach their funding targets in more than 10 years.

“With the pensions industry in a state of flux – new funding code, new government, seismic market shifts, and potential further regulatory changes to come – it is perhaps understandable that many trustees have not yet set long-term funding targets,” commented Charles Stanley Fiduciary Management senior portfolio manager, Barnaby Low.

“Around 40 per cent expect to target superfund consolidation - a reality still in its infancy - and a third still expect to ultimately buy out. This could take many years even for well-funded schemes, given insurers’ capacity constraints.

“In this environment, it is important to have a strategy that allows flexibility where needed - for example, running on for the short term, with a view to buying out at a more suitable time.

“All schemes, regardless of size, should work to achieve a goal which is in the best interests of both members and sponsors.”

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