Most pro DB trustees adopting ‘wait and see’ approach to long-term funding targets

More than three-quarters (76 per cent) of professional defined benefit (DB) pension trustees are yet to set a long-term funding target, research from Charles Stanley Fiduciary Management (CSFM) has found.

The firm noted that the majority of trustees were adopting a ‘wait and see’ approach to forthcoming regulations that are expected to require DB trustees to set formal long-term funding targets.

Almost half (47 per cent) of the trustees surveyed said they expected to set a long-term funding target in the next 12 months, while a further quarter (25 per cent) said they expect to do so in 12-24 months.

CSFM revealed that, of the trustees that had already set funding targets, 51 per cent were targeting self-sufficiency, 26 per cent were planning to consolidate into a superfund, and 19 per cent were targeting a buyout.

However, of the trustees targeting self-sufficiency, 70 per cent believed their scheme would ultimately target a buyout or consolidation, meaning that 81 per cent ultimately expect to buyout or consolidate.

A third (33 per cent) of professional DB trustees did not think that buyout was a realistic endgame objective within 10 years, with 73 per cent of respondents stating that they felt buyout was unreasonably expensive.

Commenting on the findings, CSFM senior portfolio manager, Bob Campion, said: “Technical provisions, accounting, solvency, Pension Protection Fund (PPF) – and now the long-term funding basis; it’s extremely confusing having so many different ways of valuing a DB pension scheme’s liabilities, so it’s understandable that there’s resistance to adding a new one to the list.

“But in our view the latest method is the best one. We’ve been encouraging all our clients to adopt a long-term funding basis – at least informally - for almost 10 years now. It’s quite simply the most sensible and logical way of assessing a pension scheme’s condition and planning for the future.

“So while there’s no need to adopt one formally yet, we believe it’s in the best interests of most schemes to have a long-term Funding basis in place and to be monitoring their position regularly.”

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