Management Consulting
Aon
Full Credential Description
In the context of the 2023/24 Global Pension Risk Survey conducted by Aon, UK defined benefit (DB) pension schemes faced significant challenges over the past 18 months, primarily due to global political instability and macroeconomic shocks. Despite these challenges, the survey revealed that 84 percent of trustees reported being in a better or the same funding position compared to 18 months prior, with many experiencing significantly lower deficits. This positive shift has led to a heightened focus on long-term investment strategies, with over half of the respondents (55 percent) now targeting buyout as their primary long-term goal, marking the highest percentage since the survey's inception. The survey indicated a notable shift in investment strategies, with schemes moving away from equities and growth assets towards more secure options such as bulk annuities, liability-driven investment (LDI), and credit. Specifically, 39 percent of respondents plan to reduce their equity exposure, while 30 percent anticipate increasing their allocation to credit. This strategic pivot reflects a changing attitude towards risk, particularly among schemes aiming for buyout, and the adoption of Cashflow-Driven Investment (CDI) strategies. Additionally, the market instabilities experienced in Autumn 2022 prompted a reevaluation of risk and return approaches among trustees. Approximately 45 percent of respondents indicated they would either lower their return targets to maintain hedge ratios or reduce hedge ratios to sustain return targets. The events of that period also heightened interest in fiduciary management, with 26 percent of respondents more likely to consider this approach to manage operational risk. On the environmental, social, and governance (ESG) front, all DB schemes are now mandated to report on ESG factors as part of their investment governance. The survey found that 87 percent of schemes are engaged with ESG, with 65 percent adopting a compliance-based approach and 22 percent developing their own policies. Notably, 51 percent of schemes have aligned their ESG strategies with their sponsors' goals, thereby mitigating reputational risks. The focus on ESG is particularly strong in equity portfolios, with 68 percent of schemes having implemented or planning to implement an ESG approach within the next two years, and 41 percent intending to increase ESG-related investments in credit portfolios over the same timeframe. Overall, the findings from Aon's Global Pension Risk Survey illustrate a significant shift in the investment landscape for UK DB pension schemes, with a clear trend towards de-risking and a commitment to aligning investment strategies with long-term goals and ESG considerations.