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Survey Report

Key issues facing DB schemes

Chapter one of the 2019 Emerging Trends in DB Survey

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Risk Solutions|Pensions Technology|Retirement
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November 2019

As schemes have become more mature, they are increasingly focussed on the end game. In this chapter, we explore pension scheme decision-makers' top priorities.  

Key issues

When asked to identify their top three priorities, two thirds of respondents reported long-term journey planning as a key issue for their scheme in 2019, a similar figure to last year (Figure 1).

Whilst journey planning remains an ongoing concern for schemes, our 2019 survey has seen ‘GMP equalisation’ come to the fore as an issue facing DB schemes. After 28 years of uncertainty, the Lloyds judgment on 26 October 2018 confirmed that schemes must equalise benefits between men and women where differences arise from the statutory calculation of Guaranteed Minimum Pensions (GMPs). This was the second most important issue affecting schemes across respondents (and the first amongst those with a Trustee focus).

Market conditions/volatility has become more important since 2018 and was ranked third amongst the most important issues facing DB schemes. This is likely to reflect a more uncertain global economy and UK-specific factors with Brexit looming large.

Figure 1: Which are the most important issues that you see impacting your pension scheme over the next three years?
Respondents could select up to three options
2019 2018
Long-term journey planning 67% 65%
GMP issues 60% N/A
Market conditions/volatility 37% 22%
Risk transfer transactions 24% 32%
Negotiating a funding agreement 23% 38%
Sponsor covenant 22% 37%
Quality of your scheme data 16% 20%
Members transferring out 13% 28%
Dealing with the Pensions Regulator 10% 13%
Possible changes to RPI 7% N/A
Managing conflicts of interest 4% N/A

Given the new focus on ‘GMP equalisation’ in 2019, most other issues have declined in relative importance in 2019. Still, risk transfer transactions were seen as a key issue by around one in four respondents. However, there were marked differences in the importance placed on this issue amongst those with a Trustee focus (amongst whom the issue ranked only 7th) and those with a Corporate focus (where it ranked it 3rd). For Corporate sponsors de-risking their pension plan remains a key priority.

Most journey plans would be imperilled by a rapid deterioration in the sponsoring employer’s ability to support the scheme, and sponsor covenant came fourth on the list of concerns for those with a Trustee focus.”

Most journey plans would be imperilled by a rapid deterioration in the sponsoring employer’s ability to support the scheme, and sponsor covenant came fourth on the list of concerns for those with a Trustee focus.

The Pension Regulator has recently increased the number of large schemes it engages with proactively ahead of a valuation, and in May 2018 it announced that it will also be focusing further on smaller schemes. However, only 10% of respondents listed dealing with TPR amongst their top three issues. Corporate sponsors were though much more likely to do so (7th most important issue compared to 10th most important issue for Trustees). Nevertheless, this could become a more important issue in the future.

One of the lowest ranked issues was ‘Possible changes to the Retail Prices Index (RPI)’. This issue has been bubbling away for some time, but responses were submitted before 4 September 2019, when the Government and UK Statistics Authority (UKSA) published correspondence relating to potentially dramatic changes to RPI. The UKSA had proposed the abolition of RPI and an interim alignment with CPIH until legislation could be enacted to abolish RPI (expected to result in a lower measure of inflation by up to 1% pa). The Government was not prepared to countenance the disruption associated with ceasing the publication of RPI nor could it accept the alignment with CPIH any earlier than February 2025. However, the Government’s consent to align RPI with CPIH is required only until 2030 and the UKSA has signalled that it is likely that it would make such a change from that point. A consultation promised for January 2020 will explore whether the Chancellor should consent to this happening up to five years earlier.

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