Welcome to the 2021/22 Global Pension Risk Survey of UK defined benefit (DB) pension schemes.
We have been carrying out the Global Pension Risk Survey every two years for over a decade and it gives the pension industry great insight into how the pensions landscape has developed.
Our 2021/22 findings shine a spotlight both on the short-term impact of the COVID-19 pandemic for pension schemes’ risk priorities, and more crucially on long‑term trends for schemes.
The last year will have forced all trustees and sponsors to reflect on their scheme’s governance, asset and liability priorities and risk practices. There have inevitably been temporary disruptions caused by the pandemic, with schemes pausing and then restarting large-scale projects and reassessing the types and severity of risks they face.
The survey results show:
- An increase in the number of schemes aiming for buyout as their long‑term goal
- A steady reduction in the length of time schemes expect to need to reach that long‑term goal
- An increased focus on de-risking the investment strategy and increasing interest rate and inflation hedge ratios
- A very clear trend towards embedding ESG principles in investment strategies
- Other risks, such as data, governance and cyber risks, starting to rise up the agenda
Despite the short-term turmoil, the survey findings reinforce long‑term patterns towards de-risking assets, managing broader risks and adopting an end goal of buyout. The DB landscape is irrevocably changing and the focus of schemes is clearly on activities that will prepare them for their long‑term destination. The question for many schemes is not if, but how quickly, they will reach buyout.
The DB landscape is irrevocably changing and schemes’ focus is clearly on activities that will prepare them for their long‑term destination.
As in the 2019 survey results, more than three-quarters of schemes are either targeting buyout or self-sufficiency, but for the first time in the history of the Global Pension Risk Survey, buyout (47%) has overtaken self-sufficiency (34%) as the most common long‑term objective. As schemes have seen improvements in funding positions, lower-risk targets such as buyout seem more achievable and we see more schemes willing to set it as a target.
Buyout (47%) has overtaken self-sufficiency (34%) as the most common long‑term objective
Average time to reach long‑term objective is 8.8 years, down from 9.4 years in 2019
65% of respondents expect to reach their long‑term target within 10 years
Managing benefits and liabilities
The 2021/22 survey showed 63% of schemes are closed to both new entrants and future accrual for existing members. In contrast, only 11% of schemes are still open to new entrants and future accrual — and about half of these are due to legislative requirements.
Only 11% of schemes are still open to accrual and new members
⅔ of schemes are planning member option exercises in the next 12–24 months
Over ¼ of schemes now offer paid-for IFA support
70% of schemes quoting or planning to quote CETVs in retirement packs
With over a decade’s worth of past survey data to draw on, we can look beyond the pandemic and understand the longer-term trends facing schemes.
Changes to investment strategy
Consistent with our finding that schemes are progressing towards their long‑term targets, pension schemes continue to de-risk their investment strategies, with significant monies moving out of equities into less risky asset classes, driven by improving funding levels. This has led to increasing allocations to LDI, credit and increasing hedge ratios. Accessing new opportunities through fiduciary solutions for specific asset classes is also increasing in popularity.
92% of schemes have considered ESG in relation to their investments with 20% changing their investments as a result
Over 60% of respondents either already, or are very likely to review climate-related risk with nearly 40% expecting to set metrics and targets
75% of respondents have interest rate hedge ratios above 80% of the asset value
More than 50% of respondents have reduced their equity allocation over the last two years
Pension schemes are now making broader risk-based decisions about their future and focusing on the overall strategy to deal with all their risks. This strategy now stretches beyond the more traditional investment and funding risks to incorporate projects such data cleansing, member options and GMP equalisation, so it is essential that good governance is in place to make these projects run efficiently and smoothly. Actions to manage these risks are now the main focus of many schemes, which are keen to reduce the risk that they are unable to meet their long‑term target.
55% of respondents intend to continue with more frequent, shorter meetings, with a mix of in-person and virtual meetings
40% of schemes now have a cyber incidence response plan in plan
46% of schemes have made a provisional GMP equalisation method decision