Employer covenant ranks as largest risk for DB schemes - PTL

Written by Talya Misiri
08/11/17

Employer covenant risk is currently the largest risk for defined benefit pension schemes, it has been said.

PTL’s quarterly DB Risk Survey, which asked trustees to indicate their top three current DB risks, found the highest ranked risk, employer covenant, rose to 24 per cent from 14 per cent the previous quarter.

“This suggests trustees are feeling much more nervous about the prospects for their sponsor than they did three months ago,” PTL managing director Richard Butcher commented.

On the opposite end of the spectrum, compulsory scheme mergers was voted as posing the smallest risk to DB schemes at less than five per cent.

Furthermore, longevity increases and Brexit investment implications were the second and third top risks as voted by DB trustees. These were both at around 13 per cent and 11 per cent, respectively, however, these were lower than the previous quarter.

Butcher added: “Also up is concern about risk of new deficit funding rules being introduced, this could well reflect thinking about what may be included in the DWP’s DB white paper due over the winter.

“It's not, however, all bad news. Our respondents are less concerned than they were about longevity increases, consistent with the latest mortality tables that are showing a slowing in the rate of longevity increase. The impact of Brexit on investments is also troubling them less, perhaps it is felt this is priced into the market now.as is Inflation.

Surprisingly GDPR is also down, however, this could simply because they are starting to work their way through compliance and feel more comfortable with it.”

This is PTL’s second quarterly DB Risk Survey, the first of which was run in July this year. The figures indicate the aggregate number of votes each risk received as a proportion of all the risks selected.

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