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21 January 2021

More than 80% of DB pension schemes plan to reassess their investment portfolio following challenging 2020, finds PMI and River and Mercantile research

Insight Partner

More than 80% of DB pension schemes plan to reassess whether their investment portfolio is delivering an appropriate level of return after a challenging 2020, according to research by the Pensions Management Institute (PMI) and River and Mercantile. The research has been commissioned as part of a wider initiative which will see the establishment of a fiduciary management research group chaired by River and Mercantile and with representatives from across the pensions industry.

The survey, which polled almost 100 trustees, found that more than eight in 10 schemes (85.1%) said they need to reassess whether their portfolio is delivering the return they need, with almost 80% (79.8%) saying this was a priority for 2021.

The findings come amid fears that schemes' existing strategies are not achieving their objectives to an adequate extent. Almost three-quarters of respondents (71.3%) said that without selling growth assets, they were likely to become increasingly reliant on deficit contributions to meet pension cashflows or invest in income-generating assets. More than two-thirds (68.1%) said this was a priority for the coming year.

As under-pressure sponsors contemplate their futures, almost all respondents (95.7%) said they need to consider re-aligning their investment strategy to achieving achieve their longer-term funding objectives - i.e. self-sufficiency or buy-out. More than nine out of 10 (91.5%) respondents said it was a priority for this year.

Ajeet Manjrekar, Co-head of Solutions at River and Mercantile says: "After a challenging 2020 for trustees and sponsors, it is clear schemes' investment strategies today need to target the right level of return to drive long-term funding success. While end games differ, many schemes have taken a step back from the funding progress of previous years, with 2020 being a lost year for some schemes. This is now a significant issue as schemes are getting more mature and paying out increasing amounts in pension payments.

Trustees are clearly mindful of the challenges and most respondents stressed the importance of re-aligning their investment strategy to meet their long-term funding goal. The starting point here is to reassess the target investment return from the assets as well as the risks ahead. It is encouraging to see that four in five trustees consider this is a priority for the year ahead given recent market movements. With many factors to take into account in today's uncertain world, it is critical that trustees are able to design the optimal investment strategy in order to achieve their long-term funding objective whilst explicitly addressing the risk of being blown off course."

Tim Middleton, Head of Technical at the Pensions Management Institute, said: “While the New Year typically brings a renewed sense of optimism, it seems that 2021 could be as much of a challenge for trustees and pension schemes to navigate as last year. Against this backdrop the formation of the fiduciary management research group, which will explore the key emerging themes, market developments, and how trustees can mitigate the challenges now and for the near, medium, and long-term, does provide some hope for a brighter outlook.

“The PMI remains committed to the ongoing development and improvement of the pensions sector in the UK and through this new initiative will be organising quarterly meetings to explore other topics that warrant further study and research as agreed by the group.”

A presentation of the research will take place on 23rd February via a webinar. More details will be available in due course.

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Last update: 21 January 2021

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