Two-fifths of Defined Benefit (DB) pension trustees say recent changes in the market have prompted them to reduce their scheme’s allocation to illiquid assets “as a priority”.
This is according to Standard Life, part of Phoenix Group.
Another 40% said the market has made them realise “the importance of consistently reviewing the liquidity and marketability of their scheme’s assets”.
Also, just over a quarter (26%) said this has prompted them to start engaging with an insurer earlier than expected about the “best ways to manage their illiquid assets”.
Standard Life added: “Improvements in funding levels have accelerated the need for many DB pension trustees to consider the illiquid assets in their schemes.”
Standard Life found that various options are being considered by trustees when it comes to managing illiquid assets, with 62% considering passing the assets to insurers in-specie.
Just over a third (36%) are considering using a secondary market sale and 34% “are considering deferring part of the bulk purchase annuity (BPA) premium, giving them time for the illiquid assets to redeem, or more time to sell the assets.”
However, 100% of DB pension trustees are “considering the options available to them as part of their journey to buy-out plan to manage any illiquid assets”.
Standard Life managing director of DB solutions and reinsurance Kunal Sood said: “Against the current backdrop of improved funding levels, we are seeing an increasing number of schemes with a significant portion of illiquid assets looking to engage in de-risking activity.
“Illiquid assets have the potential to offer diversification benefits to schemes and often come with predictable cash flows but they are more challenging for insurers to accept given the regulatory framework around the assets that can be used to back BPA deals.
“Insurers are looking to support schemes in managing their illiquid assets in new and innovative ways to ensure schemes are able to make the most of the assets, while enabling trustees to harness the opportunities the current market has to offer. There are various options on the table to be explored.
“Whilst many illiquid assets aren’t desirable for insurers, there are buyers who are seeking these types of assets. A secondary market sale could be a good option for some schemes, whereby an auction process is run by a broker with the aim to sell the assets to a potential buyer.
“This helps solve the issue quickly, and Standard Life is happy to support schemes in facilitating these transactions.”
To obtain these results, Censuswide on behalf of Standard Life between 28th April 2023 – 9th May 2023, spoke to 50 DB Pension Scheme Trustees, of Schemes larger than £100m.
