Cost of de-risking remains a barrier for UK trustees

UK - Trustees see cost issues as the biggest barrier to reducing risk in a pension scheme, leading a significant number to make deficit funding programmes a priority, a study has revealed.

A survey of 243 lay and independent trustees, consultants and pension managers sponsored by insurance firm Pension Corporation revealed 73% of UK scheme trustees plan to reduce risk exposure in the near future through a variety of strategies.

The Future of Pension Schemes survey showed that 65% of respondents have already taken steps to reduce risk, with 28% reducing exposure to equity markets, a quarter adopting a liability driven investment (LDI) strategy, and 8% having completed one or more pension insurance buy-ins or buyouts.

When considering future liabilities, 57% of trustees said they were considering implementing an LDI strategy, 35% were looking at longevity insurance and just over 10% were considering fiduciary management.

Although 45% of respondents said they were examining the possibility of a buy-in or buyout, 65% admitted that cost was a significant barrier when considering risk-reducing measures. The report showed that 53% saw the funding of deficits as a priority, while 74% of respondents had made becoming fully-funded or self-sufficient their short to medium term goal.

David Collinson, head of origination at Pension Corporation, said: "The study demonstrated that the fall of Lehman Brothers had a marked impact on the risk tolerance of pension fund trustees and we can see that the vast majority are seeking to limit their exposure to risk."