Pension Schemes Face Difficulties Managing Longevity Risk

MetLife Assurance's survey showed pension fund trustees and sponsors are struggling to effectively manage longevity risk, which ranked second only to the measurement of technical provisions and liabilities in importance for respondents.

(July 27, 2010) — According to MetLife’s Assurance report sponsors and trustees are struggling to develop strategies for managing longevity risk, which they ranked as a second-most important risk factor.

“While it’s apparent that scheme sponsors and trustees show a good understanding of the impact that longevity risk poses to their schemes and their organisations as a whole, they seem unable to manage this important risk on their own,” said MetLife Assurance chief executive Dan DeKeizer in the company’s UK Pension Risk Behaviour Index.

DeKeizer said that part of the reason scheme sponsors and trustees have faced obstacles managing longevity risk on their own has been due to a lack of understanding regarding available options.

MetLife’s UK pension risk behavior index analyzed how 89 trustees and sponsored viewed 18 investment, liability and business risks that impacted their pensions. The research studied how well those schemes felt they were handling their risks. A majority of respondents acknowledged that “despite an estimated £1 trillion of assets being exposed,” they had failed to manage longevity risk successfully.

The firm’s UK Pension Risk Behaviour Index also revealed efforts by schemes to develop and implement risk management are hindered as a result of divergent approaches to risk between pension trustees and scheme sponsors. Specifically, the study revealed a warning that while trustees and scheme sponsors focus on separate, yet potentially equally important, risks, this “divide and conquer” approach may pose risks to pension schemes, thwarting efforts to develop and implement holistic risk management solutions, MetLife Assurance Limited CEO Dan DeKeizer told ai5000.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742