Schroders’ UK pension scheme commits to running on

Schroders has committed to running on its defined benefit (DB) pension scheme and leveraging a portion of the surplus to partially fund its defined contribution (DC) commitments.

As a result, the trustees of the Schroders Retirement Benefits Scheme (SRBS) will be able to use approximately 10% of the DB section’s surplus per annum to support DC members’ funding, operating within key guardrails to ensure that the DB pension remains in a healthy position.

This, Schroders said, will involve regular funding level and covenant checks, as well as a mechanism to recoup contributions should the DB section’s funding level deteriorate.

The news comes as the UK government announced pension reforms to allow surplus funding to be invested in the wider economy.

Schroders said that the implementation of a cash flow-driven investment (CDI) strategy in 2019 for SRBS has resulted in steady improvements to the DB section’s funding level beyond its long-term target.

The liability-driven investments (LDI) and buy and maintain credit portfolios are structured and managed within Schroders Solutions’ team in addition to the overall solution design, oversight and implementation.

The remaining strategies, including infrastructure debt, multi-asset and securitised credit, are delivered by specialist Schroders teams.

Aon and A&O Shearman provided key actuarial, covenant and legal advice as part of the agreed trustee and sponsor mechanism.

Meagen Burnett, chief financial officer at Schroders, said: “We are delighted to join the growing list of FTSE 100 companies that are running on and using their DB surpluses to help deliver continued pension security to our people and growth to the UK economy.”

Burnett added that Schroders has worked closely with the wider trustee group to deliver a structure that works for all stakeholders.

She said: “The current funding position is testament to our strong investment capabilities across the wider group in delivering appropriate risk-adjusted returns for pension schemes.”

Lisa Mundy, professional trustee at BESTrustees and chair of trustees at SRBS, added that utilising a DB surplus when the DC section is within the same trust can give rise to many options for improving member and sponsor outcomes.

“Given the funding level and additional safeguards we put in place, we were comfortable agreeing a prudent level of surplus sharing, given Schroders’ commitments to its pensions,” she noted.

Mundy said the negotiations were wrapped into 2023 valuation discussions which, combined with separate legal advice, enabled the scheme to have the best understanding of its current actuarial position.

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