Management Consulting

The 2021/22 Global Pension Risk Survey highlights significant shifts in the UK defined benefit (DB) pension schemes, particularly in response to the COVID-19 pandemic. One of the key niche issues identified is the increasing urgency for schemes to reassess their governance and risk management practices. The survey reveals that a growing number of schemes are now targeting buyout as their long-term goal, with 47% of respondents indicating this preference, surpassing the 34% targeting self-sufficiency. This shift reflects improvements in funding positions, making buyout a more attainable objective. In terms of tailored solutions, the survey indicates that pension schemes are actively de-risking their investment strategies. This includes a notable movement of funds from equities to less risky asset classes, driven by enhanced funding levels. The data shows that 75% of respondents have interest rate hedge ratios exceeding 80% of their asset value, and over 50% have reduced their equity allocations in the past two years. Additionally, 92% of schemes are considering environmental, social, and governance (ESG) factors in their investment decisions, with 20% having already altered their investment strategies as a result. The results of the survey also provide quantifiable insights into the evolving landscape of DB pension schemes. The average time expected to reach long-term objectives has decreased from 9.4 years to 8.8 years, with 65% of respondents anticipating they will achieve their targets within the next decade. Furthermore, 63% of schemes are now closed to new entrants and future accrual, indicating a significant shift in how these schemes are managing their liabilities and benefits. The focus on broader risk management strategies, including data cleansing and GMP equalization, underscores the proactive measures being taken to ensure schemes can meet their long-term goals effectively.