In a recent study conducted by leading pensions and financial services consultancy, Hymans Robertson, it was revealed that nearly half (48%) of sponsors of Defined Benefit (DB) pension schemes have expressed intentions to pursue a buy-out strategy.
However, of these sponsors, 45% are concerned about the potential challenges they may face, including a perceived lack of insurer capacity or interest.
The research further highlighted that a significant majority (95%) of those considering buy-outs anticipate doing so within the next decade.
This trend underscores the urgency and importance for companies to carefully evaluate their options and remain open to new value creation opportunities.
Leonard Bowman, Partner & Head of Corporate DB Endgame Strategy at Hymans Robertson, emphasised the dynamic nature of the current pension landscape, characterised by evolving regulations, innovative solutions, and unpredictable financial markets.
He commented, “It really does feel that we are in an unprecedented period of change in the pensions world.”
The study also revealed a diverse range of strategies being considered, with respondents divided between a full buy-out of the scheme (48%) and continuing to run the scheme (44%).
While buy-outs may be the optimal choice for many sponsors, concerns persist regarding the process. Notably, more than two in five respondents voiced worries about insurer capacity or interest (45%), accounting implications (45%), and associated costs (41%).
Despite this uncertainty, Bowman suggested that there are opportunities arising from emerging solutions and evolving government policies.
He pointed out that the recent Mansion House reforms could pave the way for new avenues of value creation, potentially benefiting both companies and members.
These reforms may include measures such as lowering the funding threshold for extracting surplus or reducing the tax charge on surplus refunds from 35%.
Bowman concluded with a call for companies to step back and reevaluate their endgame strategies, aligning them with broader corporate objectives and beliefs while adapting to the rapidly changing pension landscape. He noted that much will hinge on future government policy decisions.
As the pension landscape continues to shift, sponsors are urged to navigate these changes with flexibility, considering all potential avenues to secure the best outcomes for both companies and their members.
