Almost half (46 per cent) of defined benefit (DB) pension scheme trustees said market volatility remained a key challenge when it came to pursuing their endgame strategy, according to research from Standard Life.

The research, which examined the considerations of DB pension scheme trustees managing schemes larger than £100m in their approach to de-risking, found that for the second consecutive year, market volatility emerged as the leading barrier, with 40 per cent of respondents identifying it as a key challenge.

In addition to this, 44 per cent of DB pension scheme trustees said The Pensions Regulator’s (TPR) DB Funding Code was a key barrier to pursuing their endgame strategy, 44 per cent said trapped surplus and 42 per cent said attracting insurer interest.

Meanwhile, managing illiquid assets was also identified by 34 per cent of DB scheme trustees as a barrier, as was their investment strategy more widely (30 per cent).

General preparedness for buy-in or buyout was identified as a key barrier by 28 per cent of respondents, while 28 per cent said third party administrator capacity issues and 26 per cent said lack of sponsor engagement.

However, compared to last year’s (2023) responses to the same question, the answers vary despite market volatility remaining the key barrier.

Almost four in 10 (36 per cent) said investment strategy was a key barrier last year, which was closely followed by a lack of sponsor engagement (32 per cent), whereas this year these concerns were lower on the list of key barriers.

“While DB funding levels have proved remarkably resilient to market volatility, these results show that for the second year running, trustees remain concerned about its possible impact when it comes to securing member benefits,” Standard Life managing director of DB solutions, Kunal Sood, said.

Sood highlighted that trustees are considering the changes in light of the implementation of the DB Funding Code.

He suggested that the code would require collaboration between schemes and their sponsors to create a “formal journey plan that targets de-risking and full funding on a low-risk basis”.

However, he said it was encouraging to see greater confidence in sponsor engagement and investment strategies, but the fact there were still barriers underscored the need for “careful” planning.

“Securing member benefits requires more than reaching funding levels and laying the groundwork can help trustees mitigate risks and manage obstacles,” Sood said.

“Insurance can play a crucial role in providing de-risking solutions to support schemes with their de-risking objectives.

“With attractive insurance pricing, bulk purchase annuity remains the gold standard for many schemes.

“For those schemes looking to this for their endgame strategy, by proactively addressing these challenges, and working closely with advisers and insurers, trustees can set their schemes up for a smooth and successful journey to buy-in or buyout.”

---