Defined benefit (DB) schemes should consider a more prominent role for contingent assets in their pension strategy, according to paper by the Society of Pension Professionals (SPP).

The paper, In Praise of Contingent Assets, warned that trustees, sponsors and advisers risked overlooking their strategic value as scheme funding levels improve and trustees adapt to The Pensions Regulator’s new DB Funding Code.

It argued that instruments including guarantees, escrows, security arrangements, surety bonds and letters of credit remain effective tools for protecting members while giving sponsors greater financial flexibility.

The SPP said the issue was becoming increasingly relevant as schemes considered run-on strategies, surplus release and alternative endgame solutions.

Contingent assets can still provide meaningful protection against covenant deterioration and strengthen trustees' position in distress scenarios, even where they are not recognised within formal Funding Code funding metrics.

The paper said that, when properly structured, contingent assets can help trustees and sponsors share risk while balancing member protection with sponsor flexibility.

Trustees and employers should focus on the form of support that best addresses scheme risks, rather than assuming cash is always the preferred option, the SPP said.

Commenting on the paper, SPP covenant committee co-chair, Adrian Bourne, said: “Contingent assets have never been an end in themselves. Their value is in what they enable trustees and sponsors to achieve – stronger member protection, greater flexibility and better management of risk.

“As DB schemes move into a new era of stronger funding and more diverse endgame strategies, we should be asking not simply whether support is provided as cash, but what form of support best protects members while preserving the strength and flexibility of the sponsor.

“Well-designed contingent assets deserve to be much more central to that conversation.”

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