Skip to main content
Article | Pensions Briefing

DB schemes’ priorities: get ‘GMP equalisation’ done, then really focus on the endgame

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Risk Solutions|Pensions Technology
N/A

By Rash Bhabra | October 29, 2020

Rash Bhabra, Head of Retirement GB, delves into the results of Willis Towers Watson’s most recent defined benefit pension surveys and explores key findings and considerations for trustees and sponsors.

Just as politicians like to say that the election they are fighting is the most important for a generation, research reports often stress what a crucial time it is for the subject under discussion.

When it comes to UK defined benefit pensions in 2020, that premise is hard to argue with. The pandemic and associated economic shock have touched everything: the likely profitability, and sometimes viability, of sponsoring employers; the value of scheme assets and liabilities (with lower growth expectations and policy responses pushing interest rates still lower); even, as with most white-collar work, the way pension schemes operate day-to-day. Meanwhile, the regulatory regime governing how employers and trustees negotiate funding agreements is set to undergo its biggest upheaval for more than 15 years, and schemes are getting to grips with a legal judgment which forces them to recalculate benefits members accrued in the early 1990s. This is the backdrop against which we carried out our 2020 Emerging Trends in Defined Benefit Pensions survey – do click through to read the results.

Fieldwork for the survey took place between late August and early October. By then, the novel coronavirus was no longer so novel; schemes had made their initial adjustments and were cracking on with pre-pandemic projects. Indeed, asked to identify their biggest priority for the next 12 months, more schemes cited the huge compliance job known as ‘GMP equalisation’ than anything else.

Perhaps for a variety of reasons – the immediate demands of the pandemic, the scale of the task, the wait for government guidance and legal clarity – 55% say they expect ‘GMP equalisation’ to take longer than they anticipated 12 months ago. Nonetheless, most schemes expect to get the bulk of the work done in 2021 or 2022. While these ambitions may not always be realistic, there is a strong desire to draw a line under this issue.

55% say they expect ‘GMP equalisation’ to take longer than they anticipated 12 months ago. Nonetheless, most schemes expect to get the bulk of the work done in 2021 or 2022.

As schemes do this, they expect to focus heavily on strategy and its implementation. Over a three-year horizon, the top three priorities are long-term journey planning, investment strategy and de-risking transactions. Recent blogs have explored schemes’ expectations for journey planning and funding (including trustees’ and corporates’ divergent views on how long it will take to reach their long-term objectives) and on transactions (with 40% of respondents looking to enter into a bulk annuity and/or a longevity swap transaction within the next three years). The challenges of addressing these complex issues in a virtual environment are discussed in our blog about scheme governance.

the pandemic has prompted reassessments both of what is affordable and of what is feasible, and plan change is very much on the agenda.”

Rash Bhabra
Head of Retirement

In our earlier research, FTSE 350 DB pension scheme report 2020 we analysed FTSE 350 companies’ annual accounts, we found a sharp trend towards closing defined benefit schemes to future accrual between 2015 and 2018, which slowed in 2019. Corporates’ responses to this survey corroborate our consulting experience: the pandemic has prompted reassessments both of what is affordable and of what is feasible, and plan change is very much on the agenda. Almost half of corporate respondents whose organisations had ongoing DB accrual expected either to hard-close their plan within three years or to make it less generous. Where we do see accrual cease, this will only sharpen decision-makers’ focus on the endgame.

Contact

Rash Bhabra
Head of Retirement

Contact Us