Corporate pension plans were hesitant about pension-risk transfers (PRT) in 2015, with the majority preferring liability-driven investing (LDI) strategies to de-risk, according to a survey.
Media firm Clear Path Analysis’ joint study with Prudential found 71% of 51 surveyed pensions professionals in the US and Canada were not even considering transferring risk from their defined benefit (DB) plans to a third-party insurer.
Only one respondent from the group—which included funds ranging in size from $500 million and $15 billion—said it was very likely they would transfer risk this year. Just 23% reported considering a transaction.
“Taken as a whole, the survey is indicative of senior finance executives moving toward a more palatable level of risk,” said Rohit Mathur, senior vice president at Prudential, said in the report. “Notwithstanding some respondents’ diffidence to de-risk, an opportunity remains for plan sponsors to recognize and rethink their pension risk management practices.”
Pension funds were also unlikely to choose lump-sum programs for their participants, the report said, with just 26% saying they would consider adopting or will very likely implement said strategy.
Instead, investors expressed their preference for LDI, with 55% looking to maintain or enhance reliance on their existing de-risking policies.
Respondents’ sentiments were similar when taking into account new mortality tables, according to the survey.
Just 12% said they would partake in PRTs if pension liabilities increased due to climbing longevity, the report said, while 25% said they would implement LDI strategies. In addition, some 61% said they found LDI strategies to be somewhat to very successful in reducing DB pension volatility.
Investors were also aware of and concerned about the movement of interest rates and longevity risk.
Nearly 76% of corporate plans said unpredictable rates either greatly impacted or slightly increased their decision to de-risk. Some 80% also said they have a very high or high awareness of how longevity risk would affect their pension liabilities.
However, pension plans were less uneasy about the price of PRTs, the report found, with 44% partially or fully disagreeing that transferring risk to an insurer is too expensive.
Source: Clear Path Analysis
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