A number of the UK's best-funded defined benefit (DB) schemes could be on the verge of running on for a few more years and helping boost economic growth, PwC has said, after its latest analysis suggested that the UK’s 5,000 DB schemes are in rude health.

In its latest Low Reliance Index, which tracks the position of the DB schemes based on a low-risk income-generating investment strategy, PwC calculated that the UK's DB universe has a record surplus of £375bn.

At the same time, the consultancy's Buyout Index posted a surplus of £250bn in October as an increase in long-term gilt yields reduced the cost for schemes to buyout their pension promises.

As a result, around 200 DB schemes with strong sponsors, which account for some 60 per cent of the sector's total assets under management, could run-on for the foreseeable future. In such a scenario, this elite group of schemes could allocate large amounts of capital into the UK and inject new life into the economy.

“Run-on might be a natural fit for large pension schemes with stronger sponsors," said PwC's head of pensions funding and transformation, John Dunn. "Our research reveals that if 40 per cent of large pension schemes did run on, and invested 30 per cent of their assets in the UK economy, that’s a pot of £100bn of pension scheme money to kick start growth."

Referring to the upcoming update from the Chancellor in the Autumn Statement later this month on whether or not the government will provide incentives for pension schemes to run-on and invest more in UK assets, Dunn says Jeremy Hunt may be keen to utilise the potential that DB schemes have to make significant investments in the economy.

"Given the complexities of UK DB schemes, accessing this isn’t in ‘low hanging fruit’ territory, but the Chancellor may be tempted by the potential reward,” added Dunn.

A recent poll of PwC clients also found that four out of 10 pension schemes would choose to run their scheme on if they were fully funded on a buyout measure.

PwC suggested that this could be for a variety of reasons, including wanting to enhance DB members’ benefits and using surplus to pay the employer’s current pension contributions. It could also be useful in giving schemes more time to prepare for buyout.

“Even more schemes might see run-on as an attractive option if there were legislative changes that made it easier for schemes to unlock ‘trapped’ surplus assets," said PwC senior pensions specialist Laura Treece.

"This may also encourage schemes to invest more within the UK — so members, businesses and the wider UK economy could all benefit."

Share Story: