Improved funding levels and changing defined benefit (DB) endgames are altering what pension schemes need from their fiduciary managers, according to XPS Group.
The consultancy reported that four in 10 defined benefit schemes expect to run on rather than pursue buyout at the earliest opportunity. The finding comes from a poll of 124 trustees and employers representing £108bn of assets, and reflects a wider shift in the options facing well-funded DB schemes.
The government’s proposed surplus flexibilities, expected to take effect from April 2027, could give schemes greater scope to run on and extract surplus rather than move directly towards buyout.
“The differences in how fiduciary managers manage liability hedging and credit portfolios can be vast and can have a material impact on outcomes. Yet these risks are too often overlooked as the differences across providers in these areas are perceived to be insignificant.”
Faye Clark, head of manager research at XPS Group, said this changing backdrop should prompt trustees to look again at fiduciary management arrangements that may have been put in place at an earlier stage of a scheme’s journey.
She said many arrangements were designed when schemes were more focused on generating returns, while de-risked portfolios increasingly depend on the quality of liability hedging, credit management, and implementation.
“As schemes de-risk, these ‘boring’ assets start to account for most of the risk,” Clark said. “The differences in how fiduciary managers manage liability hedging and credit portfolios can be vast and can have a material impact on outcomes. Yet these risks are too often overlooked as the differences across providers in these areas are perceived to be insignificant.”
XPS said fiduciary managers have adapted to this shift at different speeds. Some providers have developed clearer frameworks for surplus release, stronger downside planning and enhanced monitoring, while others remain weaker in areas such as downside analysis.
The change in scheme objectives also means credentials that previously carried significant weight may no longer be enough to support an appointment. XPS said experience supporting schemes towards risk settlement does not necessarily indicate how well a fiduciary manager can support a long-term run-on strategy.
Clark said trustees should therefore test whether the services they are paying for still match the scheme’s objectives, rather than assuming an existing arrangement remains appropriate.
That review could lead to a change of provider or, in some cases, a decision that fiduciary management itself is no longer the right approach.
“While some investment decisions can be delegated, what cannot be is the trustee’s responsibility to deliver the best outcomes for members, making this an important time to pause and reassess,” Clark said.
