Buyout is no longer the default endgame choice as 87% of trustees consider run-on as an attractive option – the sponsor's covenant, the share of surplus with members, and being able to return a share of the surplus to employers are the top factors for trustees when considering run-on
88% of DB scheme trustees believe their scheme will decide its endgame within five years; two in five (39%) expect to do so within the next two years
Trustees expect their scheme to be managed as it currently is for 3.64 years on average before putting in place an endgame strategy
Almost nine in ten (88%) of trustees of DB pension scheme expect to decide upon an endgame strategy within the next five years, with two in five (39%) expecting to do so in the next two years, according to new research from TPT Retirement Solutions, one of the UK’s leading providers of workplace pensions schemes.
The survey of 100 trustees of defined benefit (DB) pension schemes found that almost all participants (98%) were beginning preparations for entering endgame. The research shows a broad range of options are now being considered as endgame strategies beyond the traditional buyout option. Consolidation into a multi-trust solution (41%), consolidation into a superfund (40%), a capital-backed journey plan (36%), and consolidation into a DB Master Trust (34%) are the most popular options currently being considered. Run-on, meanwhile, is being considered by 28% and a bulk annuity or buyout is being considered by 27%.
On average, trustees expected schemes to be managed as they currently are for 3.64 years before putting put in place an endgame strategy, while only 4% envisioned schemes taking over ten years to reach that stage. Half of respondents (49%) said they expected to continue managing their schemes as they currently are for between three and five years.
While some schemes continue to strive for a buyout, 87% of trustees surveyed considered running-on as attractive as an endgame solution. A fifth of respondents (20%) considered the strength of the sponsor’s covenant to be the most important factor for considering the option, while the surplus share for members (17%), and being able to return a share of the surplus to employers (13%) were also routinely named as top factors for trustees when considering run-on.
To meet the demand from trustees of well-governed schemes, TPT’s DB Connect offers a solution that enables schemes to enjoy many of the benefits of consolidation without having to change their trustee board. The offering enables schemes to retain their legal structure and trustee board, while giving them access to an integrated service proposition including administration, actuarial, and covenant with fiduciary management being provided by TPT Investment Management (TPTIM), TPT’s FCA-authorised subsidiary.
Built on the scheme consolidation model, TPTIM will pool assets to deliver greater value and responsible investing options for the benefit of corporate pension schemes. TPTIM will use collectives to aggregate the assets overseen by TPT with those of external pension schemes, generating immediate scale benefits across a wide range of asset classes. This will enable schemes to benefit from reduced fees through economies of scale, improved governance, and investment expertise.
Nicholas Clapp, Commercial Director at TPT Retirement Solutions, comments: “Our research shows that the majority of trustees see run-on as an attractive option and an increasing number of trustees are now considering run-on as part of their endgame strategy. The evolution of rules governing surplus returns are likely to see increasing focus on this, and the changes which are needed to the scheme’s operating model in order for this to work. In reality, every scheme is a period of “run-on” until a decision is made to transfer the scheme to an insurer or superfund.
“With trustees seeing ever increasing-costs of running the scheme, it is important when designing a run-on solution that the scheme is being run as efficiently as possible, with an appropriate investment strategy to support this. This is where DB Connect can offer a valuable structure for Trustees by reducing the costs of running the scheme, which supports the financials needed to underpin the decision to run-on, and allows the Trustees to focus their time on monitoring the performance of their selected run-on solution.”
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