Buyouts and future of DC top trustee worries

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  • Buyouts and future of DC top trustee worries

UK - Pension buyouts and the future of defined contribution (DC) schemes are the biggest concerns for pension fund trustees, research from Aberdeen Asset Managers has revealed.

A survey of 1,000 people working within UK pension funds was conducted as part of Pensions Intelligence, a series of seminars run jointly by Aberdeen Asset Management and the University of Edinburgh Business School, and revealed 43% of trustees considered pension buyouts as a "hot topic" for discussion, while 47% highlighted the future of DC schemes as a pressing issue.

From a list of 13 key concerns, the issue of "lowering portfolio risk" also scored highly, yet only 29% of respondents claimed fiduciary management was a key issue at the moment.

The results of the survey were echoed by the Pensions Intelligence Advisory Board - made up of 13 leading pension industry figures - as they suggest the trustees' main concern about buyouts is whether it is a good deal for members.

Richard Dyson, head of Pensions Intelligence at Aberdeen, said aside from issues relating to the sponsoring employer, trustees appear concerned about the degree of separation between members and the pension fund, particularly if a secondary market were to develop, allowing buyout companies to "sell schemes on to other insurers, who could then end up wrapping it up or repackaging it and selling it on again".

He said: "While buyouts clearly benefit the sponsoring employers, trustees are beginning to ask whether it is in pension scheme members' best interests, so the first Pensions Intelligence seminar will look at different angles to discuss that while there are valid reasons for doing it, trustees need to look at where the commitment to the scheme lies."

Aberdeen acknowledge buyouts have become increasingly common as "unrealistic pension accounting and financial conditions" are encouraging schemes to offload responsibility, but said the first in a series of seminars would look at whether "another layer of separation is in members' best interests".

Dyson added: "This first seminar will address one of the key issues concerning pension fund trustees, as the buyout market continues to grow with few schemes aware of the consequences."

Despite the "strangely low" response to the issue of fiduciary management, "considering the airtime it's been getting", it may still be a future topic for the Pensions Intelligence seminars.

"We think the low response could be that either people don't really understand what it is, or that with the UK moving more towards DC schemes people are not interested in looking for future efficiencies in DB schemes as the commitment is not as high as in the past," said Dyson.

Following the results of the survey, Aberdeen revealed the topic for the next seminar in October will be the future of DC pensions, as it pointed out the first members of DC schemes will start retiring in around 15 years and there are a number of issues relating to what happens if the income is inadequate and people can't afford to retire.

In addition, the DC seminar intends to highlight the affect of age discrimination legislation on the ability to work longer, as well as the pressures trustees face in developing a default fund and manager and investment selection.

Dyson said: "This is the first kind of trustee education service where we're asking what they want to know and how they want to know it, rather than presenting what we think they should know. We will work with trustees to address concerns and increase awareness about key financial, regulatory and administrative issues facing the industry."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email

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