Management Consulting

Aon’s Global Pension Risk Survey 2021/22 revealed that UK defined benefit (DB) pension schemes are increasingly focused on derisking their investment strategies. The survey, which included 137 respondents from schemes of varying sizes, indicated that 75 percent of these schemes have improved their funding levels since the onset of the COVID-19 pandemic. As a result, over half (51 percent) of the schemes plan to reduce their equity exposure in the coming year, while 34 percent intend to increase their allocation to credit and 37 percent to Liability-Driven Investment (LDI) strategies. The survey highlighted a significant shift in investment strategies, with 74 percent of respondents now having interest rate hedges exceeding 80 percent of their assets, a notable increase from 43 percent two years prior. This trend reflects a broader strategy among pension schemes to adjust their portfolios in anticipation of buyouts, with many schemes actively seeking to mitigate risks associated with market volatility and inflation through investments in illiquid assets such as infrastructure and real estate. Additionally, the survey underscored a growing emphasis on Environmental, Social, and Governance (ESG) factors, with 92 percent of respondents considering their ESG policies. A fifth of the schemes have already made changes to their investments based on ESG criteria, and 85 percent plan to review climate change risks within the next two years. This proactive approach indicates a commitment to aligning investment strategies with sustainable practices, which is becoming increasingly critical in the current investment landscape. Overall, the findings from Aon’s survey illustrate a strategic pivot among UK DB pension schemes towards more conservative investment approaches, enhanced risk management, and a strong focus on sustainability, positioning them better for future financial stability and compliance with evolving regulatory standards.