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Deficits may run another 10 years

Twenty-seven per cent of trustees with defined-benefit pension schemes in deficit believe the schemes will still be in deficit in 10 years time, according to a survey by Aon Consulting.

But 56 per cent believe that their schemes will be in surplus in 10 years time , with 61 per cent of this group considering that this will be due to contributions from the sponsoring employer and 27 per cent through improved investment performance.

On scheme windups, 80 per cent predict their schemes will still be in existence in 10 years and 50 per cent that they will still be in existence in 20 years.

However, this contrasts with a recent Aon survey of sponsoring employers where half believe their DB scheme will be wound up in the next 10 years.

Investment strategy is cited as the biggest challenge by 51 per cent of the trustees while 41 per cent say negotiating contributions with the employer is the biggest challenge.

Three-quarters of trustees would be concerned if their scheme’s sponsoring employer were to be taken over by a private equity firm.

The main reasons are short-term funding concerns at 30 per cent, followed by worries over a deterioration in the strength of the convenant at 20 per cent and potential lack of interest in the scheme’s members at 20 per cent.

The firm interviewed 234 lay trustees from funds with assets ranging from 30m to over 500m. Sixty per cent were nominated by the scheme trustee and 40 per cent by the scheme members.

Eighty per cent would advise a friend to accept a trustee post and 82 per cent say they expect to remain a trustee for at least a further two years.

Aon Consulting chief actuary Donald Duval says: “The findings of our survey with regard to funding suggest that the Pensions Act of 2004 and the Pensions Regulator are doing most but not all of the job that they were supposed to. The majority of trustees are optimistic about their pension fund deficits.

“But more than a quarter of respondents whose funds are now in deficit believe they will still be in deficit in 2017. This runs counter to the expectations and requirements of the regulator and could raise serious issues in the medium term.

“We also sound a note of caution on pension scheme wind-ups. Trustees and sponsoring employers should have a shared view of the lifespan of their defined-benefit scheme.”

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