De-risking is firmly established on the agenda for pension scheme trustees, with 89% regarding it as important to overall business objectives according to a new report from MetLife Assurance Limited.

Managing schemes ranging in size from £20 million to more than £1 billion, 60% of trustees said de-risking their scheme has become a higher priority. The same percentage said they have plans in place to de-risk over the next five to ten years with investment risk, longevity and employer covenant as trustees’ biggest concerns. Investment risk is rated among the top three concerns by 73% of trustees, narrowly ahead of longevity on 71% and employer covenant at 45%.

Inflation risk has moved up the list of concerns reflecting the ongoing rise in CPI to 4.4% and RPI to 5.5%. Nearly two out of five trustees (39%) now rate inflation among their top three concerns compared with just 27% last year.

The options trustees are considering for reducing scheme risk in the short term are changing. Of trustees with plans to de-risk, 48% are considering asset risk hedging solutions in the next two years, while 34% are considering bulk annuity buy-ins or buyouts. Last year, MetLife Assurance’s study showed that longevity risk hedging solutions were the second most popular de-risking option, a position which has now been taken over by bulk annuity buy-ins and buyouts.

Dan DeKeizer, chief executive at MetLife Assurance Limited, said: “Trustees have fully embraced the need for de-risking and are taking action to protect the interests of their members by exploring the full range of options available to them.

“The case for de-risking is inarguable with the current economic and regulatory pressures adding to the momentum and it is striking that buy-ins and buyouts are moving up the agenda as highlighted by market analysis.”

The report also showed that regulatory pressure has increased trustees’ concern about the risks from poor administration and data, with 26% now rating it as among their top three concerns compared with 18% last year.

However, de-risking strategies such as data cleansing and member options, including enhanced transfer values and pensions increase exchange, are being considered by fewer trustees with just 10% considering data cleansing and 5% considering member options, compared with 24% and 37% respectively in 2009.

Emma Watkins, director of business development at MetLife Assurance Limited, commented: “The contrast between increasing concern from trustees about data and administration and a drop in the numbers considering data cleansing and member options could be seen as a success for regulators. Trustee boards are taking action now given the looming December 2012 deadline from The Pensions Regulator. The decrease in interest in member options among trustees may be recognition that these strategies should be led by employers as a liability reduction exercise.”

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