Three in four professional DB trustees yet to set a long-term funding target
Three quarters (76 per cent) of professional trustees are yet to set a long-term funding target, according to a new study of Professional DB Trustees, conducted by Charles Stanley Fiduciary Management.
With new regulations expected to come into force, requiring trustees to set formal long-term funding targets, the majority of trustees seem to be adopting a ‘wait-and-see’ approach until the rules are finalised.
While just a quarter (24 per cent) of trustees say their schemes have already set a long-term funding target, almost half (47 per cent) expect to set it within the next 12 months. A further 25 per cent say it will happen in the next 12-24 months.
Of those trustees who have set a long-term funding target, for more than half of Professional trustees of DB schemes their long-term funding target is self-sufficiency (51 per cent). Around a quarter said superfund consolidation (26 per cent), and one in five (19 per cent) buy-out via an insurer.
However, of those who say they are targeting self-sufficiency, 70 per cent believe their scheme will ultimately target buyout or consolidate. Taking this into account, it in fact means four in five (81 per cent) expect to buyout or consolidate.
While the majority are optimistic about endgame being achieved, a third (33 per cent) don’t think that buyout is a realistic endgame objective within 10 years. 73 per cent of professional DB trustees agree that buyout is unreasonably expensive.
Bob Campion, Senior Portfolio Manager at Charles Stanley Fiduciary Management, comments: “Technical Provisions, Accounting, Solvency, PPF – and now the Long-Term Funding basis. It’s extremely confusing having so many different ways of valuing a defined benefit 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.”