UK - Companies must take the initiative and "drive forward" solutions to manage pension liabilities, as 66% of trustees have not actively considered ways to finally settle the scheme's liabilities, Deloitte has claimed.

In its report, entitled The End Game: Clear thinking needed, the consulting firm revealed 60% of the pension trustees surveyed believe pension scheme liabilities will continue to be settled through lump sums and normal benefit payments.

Of the 66% of respondents who have not actively considered settlement of their liabilities, through approaches such as scheme buyouts with an insurer, Deloitte revealed 83% had taken no action as the scheme is still open to accrual and "final settlement is not currently under consideration".

That said, the survey of 37 trustees - representing schemes with assets of over £37bn (€47bn) and 602,000 members - showed 28% expect to see sponsoring employers turn towards buyouts in order to manage liabilities, while a further 8% expected employers to use enhanced transfers.

Although the majority of trustees are not actively seeking a buyout, 72% of respondents believed the market had become more competitive in the last two years, of which 54% thought new entrants had improved prices by 5-10%.

However, findings also showed 42% of trustees claimed if they were considering the buyout market none of the new products and options made available in the last two years would have made the market more attractive which, Deloitte claimed, "seems to question trustees' knowledge of investment".

It added: "We would expect trustees to have been made aware of these investments by their advisers, even if the trustees had no intention of using them. Perhaps there is a lesson to be learned in relation to trustee knowledge and understanding."

The survey revealed the top two risks concerning scheme trustees are longevity risk and employer covenant risk, and at the same time respondents rated these as the two most difficult issues to control or eliminate, although Deloitte claimed these could be managed by adopting a buyout policy.

But Deloitte admitted the issue to the employer is one of cost, and 73% of trustees believed they should not impose an unreasonable cost burden on the employer by instigating a buyout.

The firm claimed this implies trustees are unlikely to drive early buyouts, even though it argued the decision to wait say 10 years - the maximum length of a deficit recovery plan - would not close the gap between the FRS17 deficit and the buyout deficit for most companies.

The report stated it is "unlikely" the attractiveness of buyout is "automatically going to become greater unless something else changes", and instead suggested "addressing the 'End Game' now is important as the problem is not likely to go away".

Paul Geeson, partner at Deloitte and co-author of the report, said: "There is widespread belief among trustees that schemes will continue to run for the long term. Deloitte believes this will not be the case with an early settlement for a significant proportion of schemes via a number of different routes.

"Companies will need to consider and drive forward end game strategies if they wish to control risks most efficiently," he added.
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