The majority (90%) of defined benefit (DB) pension plans now have a long-term objective, compared to 60% in 2009, according to research by Aon Hewitt.
Its Global pension risk survey 2013 polled 220 UK DB plans with combined membership of more than three million people and representing around £300 billion of assets.
These long-term objectives typically comprise a buyout or move towards self-sufficiency, for example, by looking at the long-term investment portfolio or residual risk reliance on the scheme sponsor.
The average timescale for reaching long-term objectives, however, has increased from 11.3 years in 2009 to 12.8 years in 2013.
The research also found that 44% of respondents have frozen their plans as part of initial liability management efforts, up from 21% of those surveyed in 2009.
Kevin Wesbroom, partner and UK lead, global risk services at Aon Hewitt, said: “As liability levels have continued to rise, many pension schemes have been treading water and drifted further away from their long-term targets.
“Trustees need to prepare to take action for when funding levels improve so that their schemes are not left out at sea as a surge of de-risking opportunities and liability management activity floods the market.
“The vast majority of schemes now have long-term targets in place, typically buyout or self-sufficiency. However, the survey shows that schemes have moved further away from reaching those goals over the last four years.
“In the 2009 survey they were hoping, on average, to reach their target in 2020, but in the 2013 survey that deadline has drifted out to 2025. This is as a result of spiralling liabilities, driven in the majority of cases by the historically low levels of yields on government bonds.
“Given this situation, schemes need to ensure that they are ready to take short-term tactical action to help them move towards, rather than away from, their future targets. Despite ongoing economic uncertainty, it is feasible to imagine a period of benign asset markets and a reduction in liabilities on the back of rising interest rates. As part of a complete financial management plan, schemes should know what actions they would take in a variety of circumstances including this one.”
