Management Consulting

Aon's Global Pension Risk Survey 2021/22 revealed a significant shift in the long-term objectives of UK defined benefit (DB) pension schemes, with 47% now targeting buyout as their primary goal, surpassing the 34% aiming for self-sufficiency. This change reflects the impact of the COVID-19 pandemic, which prompted many schemes to reassess their risk exposure. Despite initial market disruptions, funding levels have improved, allowing schemes to consider lower-risk targets more achievable. The survey, which included responses from 137 UK pension schemes of varying sizes, indicated that 65% of these schemes expect to reach their long-term targets within the next decade, with the average timeline decreasing from 9.4 years in 2019 to 8.8 years in 2021. This trend suggests a growing confidence among pension schemes in their financial strategies and market conditions. To achieve their targets, 63% of schemes plan to rely on asset performance, while 54% believe they can meet their goals by adhering to their existing funding plans. Additionally, over a quarter of the schemes are considering member options exercises, and 24% anticipate needing to make additional contributions beyond their recovery plans. This marks a notable decrease from 46% in the previous survey, indicating a shift towards more stable funding strategies. However, the transition to buyout is not without challenges. The survey highlighted potential pressures on the insurance market as more schemes aim for buyout before the end of the decade. Aon partners noted that while the bulk annuity market has shown resilience, the increasing demand may lead insurers to be selective in their engagements. Furthermore, the survey pointed out that many schemes are unprepared for emerging risks, with only 40% having a cyber response plan and just 33% addressing GMP equalization, underscoring the need for comprehensive strategies to navigate future uncertainties.