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UK pension schemes focus on risk management

Defined benefit (DB) pension schemes have been in the spotlight this month, with new research indicating that trustees and sponsors are becoming more aware of risk management.

Aon Hewitt, a global talent, health and retirement solutions firm, recently unveiled the UK results of its Global Pensions Risk Survey for 2015. The findings covered 220 DB pensions schemes in the country, which are worth nearly £500 billion in assets.

DB pension schemes have garnered increasing media attention in recent years, after tightening regulations and market fluctuations from the global financial crisis highlighted significant funding problems.

According to Aon, funding is still a prominent issue, but many schemes exhibit enhanced planning and wealth management practices. In 2009, 70 per cent of UK schemes had a long-term goal, but this has climbed to 94 per cent this year.

“DB pension schemes have undergone a wholesale transformation over the past decade and they are now much better equipped to identify and manage the risks they face,” said Kevin Wesbroom, senior partner at Aon Hewitt.

“The credit crisis served as a wake-up call for sponsors and trustees, driving them to clarify long-term goals and put in place robust plans for achieving them.”

Future planning

Twenty-seven per cent of UK DB pension schemes said a buyout was their key aim in the future, while two-thirds said a self-sufficiency approach based on low-risk investment was the preferred option.

Buyouts have become more popular among companies as a way of transferring pension liabilities. Earlier this year, the Financial Times reported that insurance firms bought £8 billion worth of final salary liabilities in 2014.

Although there have been positive changes in the UK DB pensions market, Mr Wesbroom argued there are still problems to address. He noted that trustees polled in 2009 predicted a 12-year timeframe to achieve long-term risk management objectives, which is still the case.

“Despite the passage of time and six years of contributions – the future just keeps getting further away!” he added.

Nevertheless, Aon Hewitt found trustees are focusing on the four Ds in their pensions investment approach – diversification, dynamism, delegation and de-risking.

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