Defined Benefit Study
The Changing Ecosystems of Defined Benefit Pensions
Identifying trends and priorities driving the UK institutional market
The Changing Ecosystems of Defined Benefit Pensions
The UK Defined Benefit (DB) pensions landscape is evolving rapidly, and trustees have a lot of challenges to overcome.
In what is likely to be a more challenging environment for investors and pension schemes to navigate moving forward, now is an opportune time to assess the health of the UK DB market and the key priorities and concerns facing their stakeholders.
We are therefore pleased to present the findings of Russell Investments’ UK Defined Benefit Market Insights study, a new biannual series which will survey senior decision-makers to understand their current views and priorities.
Key findings
Volume 2 – Spring/Summer 2023
While improving and maintaining funding levels (60%) remains the most important priority for pension schemes, there is a marked increase in the importance decision-makers are placing on de-risking towards endgame, rising by 11% in importance since the previous iteration of this study in Autumn/Winter 2022.
Despite the initial fallout from the UK mini-budget and gilt market sell-off, the long-term impact of these events appears to be somewhat muted. 57% of respondents to this study report that their hedge ratios have remained the same despite gilt market volatility, while 73% expect to keep their current hedge ratio for the next two years.
Inflation and central bank policies (71%) remain the single biggest concern for pensions decision-makers in the next six months, with a slight increase in unease over geopolitical conflict (+7%). However, worries about the prospect of recession have receded notably, with just 28% of respondents identifying this as a concern compared to 54% in Autumn/Winter 2022.
While sustainability and ESG remain a priority for schemes generally, improved funding levels and an acceleration towards endgame are impacting the extent to which pension schemes are able to focus on climate change, with 41% unsure or unlikely to increase their focus on this area in the next twelve months.
Excessive regulation is seen as being the biggest challenge for DB schemes currently (49%). It was also cited as a significantly higher challenge for schemes currently not employing outsourced support, potentially reflecting the considerable demands on resource in meeting these requirements.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.
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