2/9/2009
By Sophie Baker
Half of UK defined benefit (DB) pension schemes have thrown caution to the wind and abandoned the idea of having a long-term strategy in place to reduce risks, says Hymans Robertson and the PensionChair Network.
The commissioned research, carried out by Winmark Research, showed that fifty per cent of DB schemes are in this position, which Hymans Robertson said is risky business. The company referenced research by the Pension Protection Fund (PPF), which showed that although pension schemes had a combined surplus of £99bn at the end of June 2007, this spiralled out of control and pushed it to a £242bn deficit by the end of March 2009.
"Given the massive risks that the £1trillion of DB pension scheme liabilities pose to sponsoring employers, and therefore the UK economy as a whole, it is surprising that such a large number of pension schemes do not have long-term plans to reduce the risks they are running," commented James Mullins, liability management specialist at Hymans Robertson. "This is despite the fact that 80 per cent of pension schemes acknowledge the need for a long-term de-risking strategy.
Mullins added that positive market performance has alleviated the situation, bringing the combined deficit to £158bn at the end of July 2009.
"However, unless more pension schemes put in place long-term strategies to reduce their risks, we fear that in the years to come we will see a repeat of the dramatic increase in pension scheme deficits that we saw in 2008. Unfortunately many pension schemes did not learn the lessons of the market falls in 2001/2, but it is crucial that they learn the lessons of 2008 by ensuring that intelligent opportunities to reduce risk are seized in the future."
Natalie Gascoigne, head of network at PensionChair Network, added that trustees need to get up to date with the risks. "I am hearing the message loud and clear from the PensionChair Network's members that in considering the future of their schemes, Trustees need to grasp the nettle. As one member recently said, ill-thought out strategies can mean 'death by 1000 cuts', which does nothing for the scheme or its members. PensionChair Network is working closely with the 91 Trustee Chairs it represents to share knowledge about workable long-term strategies in the areas of benefits, liability, funding and investment."
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Pensions Age DC roundtable 2010:
Our panel met for the first time this year to examine the key issues currently on the DC agenda. The forthcoming General Election, the introduction of auto-enrolment and NEST, corporate wraps and hybrid schemes, meant the panellists certainly had a lot to talk about
