Report Urges Slower, More Stable Approach to Pension Funding

The consultant firm noted that the regulatory focus on plugging scheme deficits quickly is actually a hindrance.

(January 26, 2011) — Recent findings from Hymans Robertson’s “FTSE350 Pensions Indicator Report,” which examines the state of UK pension finances, has found that the regulatory focus on filling scheme deficits quickly is “unhelpful,” warning that sponsors should resist the pressure to rush to ‘plug the hole’ until they have a clear de-risking strategy in place.

“In our view, most schemes, and scheme sponsors, would benefit from a slower, more stable, approach to funding,” Clive Fortes, Head of Corporate Consulting at Hymans Robertson, stated in a release. “In this regard, the regulatory focus on speed of recovery is unhelpful and potentially damaging to businesses and to their pension schemes.”

Furthermore, according to the consultant firm, last year’s the continued improvement in the funding positions of FTSE350 schemes last year will increase the use of de-risking strategies in 2011. The report showed that scheme deficits fell significantly last year – from £142 billion at the start of the year to a £109 billion deficit at year end — largely a result of the switch from Retail Price Index to Consumer Price Index for scheme indexation, estimated to have cut deficits by £25 billion.

“Companies’ 2010 financial statements will show an improvement in the financial position of their pension schemes and a reduction in the burden that these pension schemes place on the businesses that support them,” commented Fortes. “Following a number of substantial setbacks for pension schemes over the past decade, we expect that scheme sponsors will be looking for opportunities in 2011 to lock-in returns and de-risk.”

According to Hymans Robertson, this anticipated upswing in de-risking activity by schemes this year is likely to focus on 1) investment strategy, 2) risk transfer, with an expected spike in the growth of risk transfer and buyout deals, and 3) liability management, as enhanced transfer offers and pension increase exchanges will continue to be attractive for many scheme sponsors.

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