Meagen Burnett is chief financial officer at Schroders
Schroders has committed to running-on its defined benefit (DB) pension scheme – leveraging a portion of the surplus to partially fund its defined contribution (DC) commitments.
As part of the move, the Schroders Retirement Benefits Scheme (SRBS) trustee 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 the DB pension remains in a healthy position.
The guardrails that have been put in place encompass regular funding level and covenant checks, as well as a mechanism to recoup contributions should the DB section's funding level deteriorate.
Aon and A&O Shearman provided actuarial, covenant and legal advice as part of the agreed trustee and sponsor mechanism.
The move comes as prime minister Keir Starmer and chancellor Rachel Reeves announced on Tuesday (28 January) that the government would ease restrictions on how well-funded DB schemes could use their surplus.
Schroders chief financial officer Meagen Burnett 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.
"Schroders has worked closely with the wider trustee group to deliver a structure that works for all stakeholders. The current funding position is testament to our strong investment capabilities across the wider group in delivering appropriate risk-adjusted returns for pension schemes."
SRBS chair of trustees and BESTrustees professional trustee Lisa Mundy said: "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. The negotiations were wrapped into our 2023 valuation discussions which, combined with separate legal advice, enabled us to have the best understanding of our current actuarial position."
Aon partner Jonathan Wicks added: "We are happy to have supported Schroders and the SRBS trustees in their journey towards active run-on. For schemes in their position and where trustees and sponsors work closely together, we believe that a very high level of benefit security can be provided for members and significant value generated for sponsors via careful risk management strategies. This can provide favourable upside compared to buy-out with an insurer in the right circumstance."
Schroders commitment to run-on also follows the SRBS's implementation of a cashflow-driven investment (CDI) strategy in 2019 – an investment switch it says has resulted in "steady improvements to the DB section's funding level beyond its long-term target".
SRBS's liability-driven investment 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 teams across Schroders.
Schroders Solutions head of fixed income solutions Anthony Earnshaw said: "SRBS has managed to deliver solid incremental returns with a low-risk CDI solution that has put it in a great position to share the benefits across the wider member base.
"The allocation to Schroders' CDI building blocks and wider investment solution is testament to both our investment capabilities and our focus on working in partnership with clients to address their investment challenges."
