12/03/2012
By Ilonka Oudenampsen
Lack of resource to explore the options available to help meet their long-term funding target is the main challenge facing medium-sized pension schemes, according to Aon Hewitt’s first Mid-Market Pension Survey.
The survey found that for schemes with between £10m and £500m the main areas of concern are the burden of external costs and the time constraints on those connected with the scheme and who have the relevant expertise to take action.
Aon Hewitt polled over 200 schemes, with combined over £30bn of assets and representing over half a million members in the UK.
Confirming previous findings by The Pensions Regulator (TPR), the survey found that a significantly higher proportion of mid-market schemes are now closed to future accrual.
Only 7% of respondents did not have a long-term target in place, while self-sufficiency is the aim for 48% of schemes, buyout for 24%, and 19% said they are targeting something ‘low risk but not self-sufficient’. However, only over a quarter of schemes have a robust plan in place, while two in five said they only have a basic plan and one third said they do not have any existing plan.
Aon Hewitt principal and actuary Paul McGlone said that the mid-market pension space is often overlooked, despite accounting for more than 61% of all pension schemes in the UK.
“Unfortunately, while schemes are rightly establishing their key aims, constraints on time, expertise and cost are preventing many schemes from completing their strategy. Many of them still lack the road map and means to get themselves to their optimum goal, which can only be detrimental in the long run.
“There is also a pattern which we see in other areas of the mid-market. While more than enough options exist for dealing with scheme deficits, limitations on time, money and expertise mean that not all these opportunities are being explored. Those constraints are very real, and schemes cannot simply find more money, more time or more expertise,” McGlone.
However, he added that solutions tend to become more accessible over time, as has been the case with liability driven investment, and options such as longevity hedging might also soon be opened up to smaller schemes.
“With that in mind, medium-sized schemes need to keep an eye on developments and seize the moment when they become viable options. In the meantime, they can ensure that they have an operational and governance model that recognises their particular constraints, makes use of the limited resources in the most efficient way, and doesn’t waste time on areas that are not a priority.”
