LCP has published its latest annual report in the ‘Chart your own course’ series, which draws on data from a special survey of DB schemes together with an analysis of scheme funding and investment data from over 250 LCP clients. This year’s report – entitled ‘A Tale of Two Journeys’ – highlights the diverse experience of schemes during a turbulent twelve months. In particular, whilst the majority of schemes have seen their funding position improve compared to a year earlier, around 1 in 6 saw a deterioration. 

Key findings from the research include: 

• Around two-thirds of schemes which responded to the survey said they expected to undertake a ‘final’ insurance transaction in the next five years, but over 1 in 6 (18%) said that this final stage was at least ten years away. 
• Nearly one-third (30%) of schemes had seen a substantial improvement in funding relative to a buyout (full insurance) target of at least 7.5%, but just under 1 in 6 (15%) had actually gone backwards on the same measure. 
• With rapidly changing market conditions, around 1 in 3 DB schemes said that they had reviewed their investment strategy last year, and 1 in 4 had revisited their long-term ‘journey plan’ – LCP expects these figures to increase in the coming months. 

In terms of the priorities of schemes, although the triennial valuation process remained an important focus for many, this year planning for a de-risking transaction topped the poll.   

Looking in more detail at the results by scheme size, the smaller schemes in the survey (those with assets under £500m) were the most likely to aim to fully insure their scheme (75% with this goal) as against 42% of the largest schemes (those with assets over £5bn). The majority of these largest schemes were planning long-term self-sufficiency rather than insurance. 

Hot topics such as climate change risks and embracing diversity, equity and inclusion were important issues for many schemes, but 30% (for climate change) and 20% (for DEI) of respondents described these duties as either ‘burdensome’ or ‘not relevant’ to their scheme. 

LCP’s full report is structured around the five point ‘LCP GEARS’ approach to scheme funding and long-term planning. This recommends that schemes should: 

• Get the right governance structure in place 
• Establish endgame and timetables 
• Analyse what could change the journey 
• Refine the steps needed to take to achieve the scheme’s goals 
• Steer the scheme’s journey dynamically and in a joined-up way 

Commenting on the research findings, LCP Partner Mary Spencer said: 

“The last twelve months have seen a time of considerable market turmoil combined with regulatory change and uncertainty. The need for pension schemes to be nimble and respond to changing circumstances has never been more important. Many are now in a much stronger position and are planning for their final steps, such as insurance transactions within the next five years, but it’s not over until it’s over and with a busy insurance market, a carefully planned process is essential. Some have seen their goal move further away and need to re-think their journey. Our survey also shows that for the largest schemes, in particular, insurance is by no means the only answer, with long-term self-sufficiency a common objective. It seems very likely that the next few years will continue to see considerable political and economic uncertainty, and trustees and sponsors will need to work closely together to ensure that their scheme is not blown off course.”