73% of occupational pension trustees plan to reduce their allocation to equities in the next year, with 22% expecting to receive company assets, such as property, in lieu of cash contributions to help fund their deficit, according to a comprehensive survey of trustees “The Future of Pension Funds 2011”, published today.
Key findings
• 73% of trustees plan to reduce their allocation to equities
• 22% expect to receive company assets, such as property, from their sponsor in lieu of cash contributions
• 55% of pension fund trustees may increase sponsor contributions by more than 10% after the next valuation; 11% may do so in excess of 20%
• 44% believe switching to CPI-linked benefits is ‘unfair on pensioners’
• 47% indicated that tackling a deficit is their top priority; 31% expect to buyout
• 58% are confident of being fully funded within 10 years; 29% expect to get only the minimum PPF benefits if their sponsor becomes insolvent within five years
• LDI is the most favoured de-risking strategy under consideration (56%), then buy-ins and buyouts (33%), longevity swaps (30%) and fiduciary management (9%)
The survey of almost 200 trustees with aggregate liabilities of at least £50 billion was carried out by Pension Corporation, a leading provider of risk management solutions to defined benefit pension funds, in conjunction with Engaged Investor magazine.
David Collinson, Co-Head of Business Origination, Pension Corporation, said, “Our second annual survey of pension fund trustees has shown that more than ever, trustees are looking to seriously tackle the deficits in their pension funds and aim to use every tool available to them, including company owned assets.
“Flexibility in how to pay off deficits should be good news for companies as they seek to retain liquid assets in a difficult economic environment, not least since there is likely to be a big increase in the amount trustees request from their sponsor after the next valuation.”
In the study, trustees admit that despite their determination to reduce risk and improve funding levels, they are uncomfortable in following the Government’s lead in applying the Consumer Price Index (CPI) to inflation uplifts, even though this would potentially reduce their liabilities.
44% believe switching from Retail Price Index to CPI-linked benefits is ‘unfair on pensioners’, and only 24% welcome the move towards CPI. Despite their unhappiness with the situation, 51% plan to move at least some of their benefits to CPI indexation.
Trustees also revealed that on balance they should be remunerated for their work (43% said ‘yes’, 35% said ‘no’) on the basis that the role requires increasing pensions expertise, although the overall proportion of trustees in favour of remuneration has declined compared with previous years (62% said ‘yes’ in 2010).
“Trustees are under pressure to reduce risk and improve funding while being fair to members; mission impossible unless sponsoring employers are able to foot the bill at a time when many businesses continue to struggle,” said Bob Campion, Publisher/ Editor-in-Chief of Engaged Investor and Pensions Insight magazines. “It is no wonder that they feel their role is getting increasingly complex. It is about time that trustees got the recognition and support they deserve for working hard to protect the pensions of millions of UK workers.”
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