The average time for a UK defined benefit pension scheme to make itself buyout ready rose from 5.1 to to 5.2 years between June and July 2023, according to Barnett Waddingham.
As of 31 July 2023, the DB End Gauge index found the average pension scheme would need 5.2 years to reach a sufficient level of funding to buyout their liabilities with an insurance company.
The index increased slightly over the last month from 30 June 2023 to 31 July 2023, from 5.1 years to 5.2 years.
Lewys Curteis, principal at Barnett Waddingham, said the increase had been caused by an increase in liability values, following a small reduction in average swap rates and bond yields. These offset growth in scheme assets.
Curteis added: "After the dramatic financial market changes experienced last year, this period of relative calm provides an ideal opportunity to revisit DB scheme funding and investment strategies to ensure that these are consistent with company objectives and risk appetites.”
Appetite for BPA deals
The rise in the index, although small, comes as demand for buyouts is set to soar. Four fifths of defined benefit pension scheme trustees expect to approach an insurer about de-risking within five years. According to Standard Life, 86 per cent of trustees anticipate their scheme approaching an insurer for a bulk purchase annuity (BPA) transaction within the next five years.
The insurer said research carried out among 50 pension trustees managing DB schemes with assets over £100m found 50 per cent anticipated their scheme would approach an insurer about a buy-in or buyout in the next one to five years. Over a third anticipated approaching an insurer even sooner, within the next year.
This high demand for de-risking activity comes as more than 92 per cent 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.
DB's end gauge index is calculated using publicly available data collected from the annual accounts of the FTSE 350 companies and covers around 160 companies with DB pension arrangements and is calculated as the average of the estimated time to reach buyout funding for each scheme.
