The UK is leading the way in implementing innovative risk management solutions for the key issues in the defined benefit (DB) pension schemes, according to Aon Consulting.

Compared to the US and Canada, which concentrate largely on interest rates and equity markets, UK pension schemes are further ahead in getting to grips with these issues, and have now moved onto the matters of longevity and inflation.

Top global financial services organisations that provide pension risk management products and solutions to plan sponsors in the UK, US and Canada said interest rates were the most important risk facing DB sponsors between now and 2013 (58 per cent), followed by longevity (21 per cent), equity markets (15 per cent) and inflation (six per cent).

Longevity and equity market risks were decided as the most difficult to mitigate and remove.

"Historically, the risk management products and solutions available to plan sponsors in the UK have been more advanced than those in the US and Canadian markets," commented Andy McKinnell, investment principal and actuary, Aon Consulting. "While dealing with equity market volatility and interest rate risks are important in the UK, the local market has already developed products and solutions that help schemes deal with these matters effectively. We have now moved on to consider the most challenging risks of longevity and inflation, which are essentially the next part of the conversation in pensions. UK schemes have access to pooled fund solutions that simply aren't available in the US and Canada."

McKinnell added that globally, current DB plan governance structures do not support rapid implementation of new strategies, and instead plan sponsors have tended to take on risk to improve their funded position.

The Aon Consulting Pension Risk Management Global Survey 2010 is available for download here.

Share Story: