The Schroders Retirement Benefits Scheme (SRBS) trustee will be able to use approximately 10% of the DB section’s surplus per annum to support DC members’ funding, operating within key guardrails to ensure that the DB pension remains in a healthy position. These guardrails encompass regular funding level and covenant checks, as well as a mechanism to recoup contributions should the DB section’s funding level deteriorate. It comes as the UK Government announces pension reforms to allow surplus funds to be invested in the wider economy.
The implementation of a Cashflow Driven Investment (CDI) strategy in 2019 for SRBS has resulted in steady improvements to the DB section’s funding level beyond its long-term target. The LDI and Buy and Maintain Credit portfolios are structured and managed within Schroders Solutions’ team in addition to the overall solution design, oversight and implementation. The remaining strategies, including Infrastructure Debt, Multi-Asset and Securitised Credit are delivered by specialist teams across Schroders. This increased funding position is testament to Schroders’ investment expertise and commitment to solving clients’ investment challenges. Aon and A&O Shearman provided key actuarial, covenant and legal advice as part of the agreed trustee and sponsor mechanism.
Meagen Burnett, Chief Financial Officer, Schroders, said: ”We are delighted to join the growing list of FTSE 100 companies that are running-on and using their DB surpluses to help deliver continued pension security to our people and growth to the UK economy. Schroders has worked closely with the wider trustee group to deliver a structure that works for all stakeholders. The current funding position is testament to our strong investment capabilities across the wider group in delivering appropriate risk-adjusted returns for pension schemes.”
Lisa Mundy, Professional Trustee at BESTrustees and Chair of Trustee, SRBS, said: “Utilising a defined benefit surplus when the defined contribution section is within the same trust can give rise to many options for improving member and sponsor outcomes. Given the funding level and additional safeguards we put in place we were comfortable agreeing a prudent level of surplus sharing given Schroders’ commitments to its pensions. The negotiations were wrapped into our 2023 valuation discussions which, combined with separate legal advice, enabled us to have the best understanding of our current actuarial position."
Jonathan Wicks, Aon, said: “We are happy to have supported Schroders and the SRBS trustees in their journey towards active run-on. For schemes in their position and where trustees and sponsors work closely together, we believe that a very high level of benefit security can be provided for members and significant value generated for sponsors via careful risk management strategies. This can provide favourable upside compared to buy-out with an insurer in the right circumstance.”
Anthony Earnshaw, Head of Fixed Income Solutions, Schroders Solutions, said: “SRBS has managed to deliver solid incremental returns with a low-risk CDI solution that has put it in a great position to share the benefits across the wider member base. The allocation to Schroders’ CDI building blocks and wider investment solution is testament to both our investment capabilities and our focus on working in partnership with clients to address their investment challenges.”
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