I was struck when reading the findings of TPT Retirement Solutions’ trustee survey by two things. Firstly, how different they are from survey findings a year or 19 months ago; secondly how DB “endgame solutions” are extending the duration of schemes to a point where “endgame” seems an overly dramatic term.
To an extent, TPT – a master trust consolidator, is talking his own book. Hat-tip to Nicholas Clapp who was a rising star when I worked with him in the early 1990s, how good it is to see people committing their careers to pensions. In as much as I am involved in helping schemes run on through capital backed journey plans, so am I. My point is that those who have a long-term career in pensions, tend to have a long-term view of pensions.
Put simply, those who want pensions, don’t want to stop pensions. Trustees want pensions to be paid to people, that is what they do.
There is more from this survey that I would like to quote, not for self-comfort but because the narrative is so very different from that which was being forced upon us in the wake of the LLDI crisis.
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98% of trustees have started endgame planning as consolidation and capital-backed journey plans are the most popular options being considered
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Buyout is no longer the default endgame choice as 87% of trustees consider run-on as an attractive option – the sponsor’s covenant, the share of surplus with members, and being able to return a share of the surplus to employers are the top factors for trustees when considering run-on
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88% of DB scheme trustees believe their scheme will decide its endgame within five years; two in five (39%) expect to do so within the next two years
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Trustees expect their scheme to be managed as it currently is for 3.64 years on average before putting in place an endgame strategy
The key word for me here is “decide”. Decisive trustee decision making is something new. In my experience, trustees have put their primary faith in compliance – compliance with tramlines along which they steer their schemes. Those tramlines are less distinct and DB schemes can now determine their future course with greater freedom.
That freedom comes from a return to economic and fiscal conditions which I hope will be the new normal. When the historians write the history of pensions, they will doubtless conclude that it was the suppression of interest rates through the flooding of markets with money, that created the conditions for the big blow-out of 2022. This suppression also denied trustees self-determination. Their schemes were seen to be so in deficit to their liabilities that the only decision that could be taken was to adopt leverage to get schemes back to seeming solvency.
Some, most notably Keating and Clacher, question the current levels of solvency, pointing to a lack of assets to cover future pension payments, but on balance, the new found confidence among trustees is a better thing than the group-funk that led to collective de-risking. How ironic that de-risking led to such trauma.
There are of course decisions which still seem taboo. One such decision is to re-open a DB scheme, another to start a new one for the purpose of paying pensions.
The link between pensions and employers is still too strong in trustee thinking for consolidation to have really taken hold. The debt that schemes owe sponsors who have set aside plans for the future to meet obligations from the past is still too fresh in minds to ask the sponsor to step away. And the understandable predilection of trustees to do their job, means that stepping away from cherished appointments is not a decision to be taken lightly.
We perhaps underestimate the stock of expertise within professional trustees. It will undoubtedly reduce in numbers but like any good stock, intensify in impact with the reduction.
“Decisive trustees” is an oxymoron to me, but maybe I have underestimated their capacity to survive and keep their schemes alive. Let’s hope that “alive” means more than running Zombie schemes where the only assets of the scheme are bulk annuities.
From the findings of this report, that will not be the case.
The chess analogy of “endgame” is a curious one. Which is black (the insurers, or maybe the consultants?); which is white (the trustees, the members?).
Beware of zugzwang, or at least be aware of zugzwang.
If Keating and Clacher are correct, then the pieces now available to many trustee boards are depleted after LDI, and they now have few pieces with which to force a win or a draw.
Trustee surveys, in my experience, suggest more certain answers and timescales than may occur in practice. Few like to admit that in an uncertain world they simply “don’t know”.