UK pension sponsors have invested more than £500 billion into their defined benefit (DB) pension schemes since the year 2000, and deficits have increased by around the same amount, from £250 billion that year to over £900 billion in 2015.1 For the first time, UK private sector DB schemes collectively have liabilities of over £2 trillion, significantly in excess of the UK’s GDP of £1.8 trillion.2
For mature DB schemes, investment time horizons are shortening and many are obliged to pay out more in benefits than they receive in contributions – a situation that is expected to intensify as the pension freedoms lead to an increase in flows from DB to defined contribution (DC) arrangements. As these schemes begin to disinvest more of their assets, the timing of returns becomes critical.
Our research examined attitudes among pension scheme trustees, managers and consultants to investment decision making, in particular, how DB schemes are meeting their liabilities, and the role of multi-asset and multi-strategy funds in DB and DC schemes.
In our research there was broad consensus that an outcome-oriented approach is the most likely to result in a successful solution, that is, an approach which in the words of one respondent “gives managers a broad range of assets from which to achieve a target return profile, whether it be income or growth,” and which in turn “gives them much more ability to use their skills and effectively play between the silos” to reach the outcomes desired.