Based on the situation at the end of June, around 55% of the FTSE350 defined benefit (DB) pension schemes can now expect to be in a position to buy out via an insurer within 10 years, down from 65% at the start of the year, according to Barnett Waddingham.

The average time to buy-out increased from eight years and two months at the end of December 2019 to nine years, two months at the end of June.

For the average time to buy-out to return to the position at the start of the year, the FTSE350 companies would need to step up their deficit contributions by around a third relative to current levels, but given current challenges this is looking “increasingly implausible,” said the consultancy. 

A number of companies have made the decision to defer deficit contributions in response to the economic impact of coronavirus. The pensions regulator (TPR) has said that since March, it has received 108 revised recovery plans, of which almost 86% have seen schemes agree to defer their deficit repair contributions. The majority were from small schemes and relate to sectors under increased strain from the impact of COVID, such as the manufacturing, retail and airline industries.

According to Barnett Waddingham, at the end of June, a 50% reduction in deficit contributions would reduce the proportion of FTSE350 schemes able to buy out within 10 years to around 40%. The average time to buyout for the FTSE350 would increase significantly to 11 years and three months, an increase of just over three years from the position at the start of the year.

Simon Taylor, partner at Barnett Waddingham, said: “With TPR’s consultation on a revised DB funding code of practice currently ongoing, it will not be long before schemes are required to put in place a long-term funding plan for reaching the endgame.

“This will arrive at a challenging time for a lot of schemes, as both funding levels and company strength have taken a hit in recent months.” 

Exeter Uni scheme hires Aon for investment advice

The University of Exeter Retirement Benefits Scheme (ERBS) has appointed Aon as its investment advisor.

The appointment is an addition to the existing services the firm provides the pension fund – Aon has been the scheme’s actuary since 1999. Charlie Iversen, senior investment consultant at Aon, will be the lead investment adviser, the consultancy announced.

ERBS – a closed defined benefit pension scheme providing benefits to non-academic staff at the university – has assets of around £140m (€154m) and more than 3,000 deferred and pensioner members.

According to an ERBS spkesperson, Aon replaces Mercer as investment advisor. The scheme also uses BlackRock as its sole asset manager.

Penny Green, a trustee executive at BESTrustees and professional chair of trustees for ERBS, said: “We have worked successfully with the Aon team as our actuarial advisers for many years and throughout that time they have demonstrated a good understanding of us, our issues and how we like to work.

“As we identified the need for investment and actuarial advice to be more connected as we work towards our long-term objectives, it was therefore a relatively easy decision to extend Aon’s appointment to cover investment advice as well as actuarial.”

The scheme’s investment portfolio previously comprised 40% global equities and 60% bonds, the spokesperson said. This was revised in December 2018 to an allocation of 30% equities/70% bonds and a further reduction in equities was made in March 2019.

The spokesperson said the current target allocation is 20% equities and 80% bonds, also adding that as part of the last formal valuation as at 5 April 2015 a recovery plan was agreed to bring the scheme to a fully funded position by 31 July 2029. As of April 2019 ERBS was 87% funded.

Looking for IPE’s latest magazine? Read the digital edition here.