Sophie Mayall: Cautious by nature, many trustees are reluctant to be first movers
Greater optionality is not translating into the automatic adoption of alternative endgame solutions, latest analysis from FTI Consulting reveals.
The strategic communications firm's report, A New Era of Optionality: The Future of UK Defined Benefit (DB) Endgame Strategy, drew on insights from experts across the industry – including Brightwell Unit X manager Chris Threadgold, Clara Pensions chief transactions officer Matt Wilmington; Gallagher managing director of investment consulting Mathias Rasmussen; Mayer Brown senior associate Henry Corrigan; and XPS Group risk transfer adviser Patrick Lloyd.
The report said that, with over 60% of DB schemes currently in surplus on a buyout basis, improved solvency, coupled with greater regulatory flexibility, is enabling trustees to consider the full range of endgame options as viable alternatives to traditional buyout.
But it found that trust and reputation, not product viability, are emerging as the key factors shaping endgame decision-making.
It found for less established routes, such as capital-backed journey plans, superfunds or even surplus extraction within run-on, the need for social proof was the biggest identified barrier to growth.
And the report noted that for larger, well-funded schemes, run-on is increasingly being used to keep options open and to derive additional value from the pension balance sheet, rather than signalling a binary move away from buyout.
The paper said while buy-in remains the primary target for smaller schemes, growing competition from alternative solutions is widening both access and choice for that end of the market.
The report also highlighted how, as insurer capacity has expanded and competition has intensified, trustees are placing greater weight on qualitative differentiators including administration standards, member experience, digital capabilities and approaches to responsible investment.
Sophie Mayall, a managing director within the financial services team at FTI Consulting, said: "Cautious by nature, many trustees are reluctant to be first movers. Education around new structures, who they are suitable for, what they can deliver for members – coupled with clear communication around early transactions – will be crucial to building the necessary social proof and trustee confidence to move these structures further into the mainstream."
Mayall added: "As the market continues to mature and pricing becomes less of a distinguishing feature, insurers will need to demonstrate value across a wider range of areas. For schemes, this increased competition is creating opportunities to assess providers not only on cost, but on the overall quality of outcomes they can deliver for members over the long term.
"Above all, the report highlights that members' interests must remain at the heart of every endgame decision. It concludes that success in this new era of optionality will not be measured by the route a scheme chooses, but by the security it provides and the outcomes it delivers to members in their retirement."
