The growing number of endgame options for defined benefit (DB) pension schemes is not translating into the automatic adoption of alternative solutions, a report from FTI Consulting has stated.

Its report, A New Era of Optionality: The Future of UK DB Endgame Strategy, found that trust and reputation, rather than product availability, were emerging as the key factors shaping endgame decision making.

While the Pension Schemes Act has opened up several alternative endgame routes for DB schemes, FTI Consulting highlighted that for less established strategies, such as capital-backed journey plans, superfunds, or surplus extraction within run-on, the need for social proof was the greatest barrier to growth.

Run-on was increasingly being used by larger, well-funded schemes to keep options open and derive additional value, rather than driving a binary move away from buyout.

Meanwhile, although buy-in remained the primary strategy for smaller schemes, growing competition from alternative solutions was broadening access and choice for those schemes.

As insurer capacity has increased and competition has intensified, the repot noted that trustees were placing greater emphasis on qualitative differentiators, including administration standards, member experience, digital capabilities and approaches to responsible investment.

The report highlighted that data quality and benefit accuracy were fundamental to preserving optionality and moving quickly when the right opportunity presents itself, no matter the endgame destination.

“Cautious by nature, many trustees are reluctant to be first movers,” commented FTI Consulting managing director, financial services, Sophie Mayall.

“Education around new structures, who they are suitable for, what they can deliver for members — coupled with clear communication around early transactions — will be crucial to building the necessary social proof and trustee confidence to move these structures further into the mainstream.

“As the market continues to mature and pricing becomes less of a distinguishing feature, insurers will need to demonstrate value across a wider range of areas.

“For schemes, this increased competition is creating opportunities to assess providers not only on cost, but on the overall quality of outcomes they can deliver for members over the long term.”

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