Management Consulting

The 2021/22 Global Pension Risk Survey highlights significant shifts in the UK defined benefit (DB) pension schemes, particularly in response to the COVID-19 pandemic. One of the key niche issues identified is the increasing urgency for schemes to reassess their governance, asset and liability priorities, and risk management practices. The pandemic prompted many schemes to pause and then restart large-scale projects, leading to a reevaluation of the types and severity of risks they face. In terms of tailored solutions, the survey indicates a marked trend towards de-risking investment strategies, with a notable increase in the number of schemes targeting buyout as their long-term goal—47% of schemes now prioritize buyout over self-sufficiency (34%). This shift is supported by improved funding positions, allowing schemes to set more achievable targets. The average time expected to reach these long-term objectives has decreased from 9.4 years to 8.8 years, with 65% of respondents anticipating they will reach their goals within the next decade. Quantifiable results from the survey reveal that 63% of schemes are now closed to new entrants and future accrual, with only 11% remaining open, primarily due to legislative requirements. Additionally, over a quarter of schemes are offering paid-for Independent Financial Advisor (IFA) support, and 70% are quoting or planning to quote Cash Equivalent Transfer Values (CETVs) in retirement packs. The survey also notes a significant shift in investment strategies, with 92% of schemes considering Environmental, Social, and Governance (ESG) factors, and over 60% likely to review climate-related risks. Furthermore, 75% of respondents have interest rate hedge ratios exceeding 80% of their asset value, and more than half have reduced their equity allocations in the past two years. Overall, the findings underscore a transformative period for DB pension schemes, with a clear focus on managing broader risks and preparing for long-term objectives, particularly in the context of buyout strategies and enhanced governance practices.