Four fifths of DB scheme trustees expect to discuss de-risking with insurers

Over eight in 10 (86%) of defined benefit (DB) pension scheme trustees have said that they are expecting to approach an insurer in the next five years to discuss de-risking, new research by Standard Life has found.

The group, which is part of Phoenix Group, found that among 50 pension trustees managing DB schemes with assets over £100m, 50% anticipate that their scheme will approach an insurer about a buy-in or buy-out in the next one to five years, with over a third (36%) expecting
to do so within the next year.

The high demand for de-risking comes as more than 92% of trustees reported that the economic environment over the last year has improved their scheme funding level, with DB schemes having benefitted from factors including a rise in gilt yields, high inflation rates and slowing longevity improvements.

Managing director of DB solution and reinsurance at Standard Life, Kunal Sood, said: “Bulk purchase annuity (BPA) deals have long been considered the gold standard when it comes to de-risking, but sufficient funding is a key factor and for many pension schemes, a BPA deal was not in their short-term horizon, even just a year ago.

“However, driven in part by the increase in gilt yields and inflation rates, scheme funding levels have improved to the point where BPA deals are now a near-term solution for many DB schemes, as our research shows. This new funding environment has helped drive demand across the market, which is on track to meet expectations that 2023 will be a record-breaking year in terms of BPA deal volumes.”

Additionally, 95% of trustees reported that pricing was an important factor that determines whether they choose buy-in or buyout as their endgame strategy.

Kunal added: “Trustees have many factors to consider when it comes to their de-risking strategy, however, with many schemes in a strong funding position, it is unlikely the current appetite for buy-ins and buyout will slow down. This means it is crucial that schemes prioritise preparation and ensure they have clarity on their requirements and objectives, so that they are well prepared to maximise insurer engagement. This will help schemes keep pace in a fast-moving market and ensure their de-risking journey is smooth and successful.”

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