Low dependency has overtaken buyout as the most common endgame route for defined benefit (DB) schemes, according to new data from Independent Governance Group (IGG).
IGG’s survey found that 43% of responding schemes are pursuing low dependency, compared with 35% targeting buyout and 22% running on.
Tim Giles, trustee director at IGG, said: “The data reflects a market that is still working through a range of possible endgame outcomes on the back of a radically different funding environment.
“Low dependency is clearly the most popular option, but there is also a clear shift towards schemes keeping their options open to consider what will deliver the best outcome for stakeholders.”
The Pensions Regulator’s recent DB universe projection model suggests that DB schemes could still hold around £0.6trn to £0.7trn of assets in 2035. However, IGG has cautioned that planning for surplus has not kept pace with improving funding positions.
According to the survey, 64% of responding schemes have yet to decide how they would approach generating surplus once they reach their long-term funding objective. Just 17% said they had a clear plan for sharing future surplus, while 14% had a partial or unclear plan, and 69% had no plan at all.
IGG said that, as funding improves and surplus becomes more achievable, the key challenge for schemes is increasingly one of governance. That means trustees and sponsors may need clearer frameworks around objectives, surplus triggers, risk buffers, potential uses of surplus, and decision-making.
Giles added: “As funding levels improve, and governance capability develops alongside them, schemes are gaining access to options that may not previously have been available.
“The challenge is increasingly about having the right frameworks in place to navigate that wider range of endgame paths, with clear objectives, agreed decision-making and a shared understanding between trustees and sponsors of what different outcomes could involve.
“Schemes that have done more of that groundwork are likely to be better placed to respond in a measured way as their position evolves, for the benefit of both members and sponsors.”
