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Mid-sized pension funds lack resources to tackle long-term funding

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  • Mid-sized pension funds lack resources to tackle long-term funding

UK - Medium-sized pension funds are increasingly inclined to adopt long-term targets when addressing funding problems, but they still lack the requisite resources to explore all of the solutions currently available to them, a new survey has found.

According to Aon Hewitt's 'Mid-Market Pension Survey', the size of medium-sized pension schemes - roughly £10m (€12m) to £500m in AUM - deeply influences how they meet the challenges they currently face.

Paul McGlone, principal and actuary at the consultancy, added: "While resource constraints are undoubtedly limiting the actions of larger schemes as well, the effects being felt here in the mid-market are clearly more intense and could be long-lasting."

The survey found that nearly all schemes (93%) among the 200 UK pension plans surveyed have long-term funding targets in mind.

This comes on top of the statutory technical provisions, which they are required to report, the study said.

However, due to the lack of resources available to medium-sized schemes, many have yet to put in place a viable flight plan for reaching their long-term targets. 

In total, around two in five schemes surveyed have only a basic plan, while one-third admitted to not having any existing plan.

"Unfortunately," McGlone said, "while schemes are rightly establishing their key aims, constraints on time, expertise and cost are preventing many schemes from completing their strategy. 

"Many of them still lack the road map and means to get themselves to their optimum goal, which can only be detrimental in the long run."

If there is a cause for optimism, he said, it is that solutions tend to become more "accessible" over time.

"Not so long ago, liability-driven investment was a rarity for medium-sized schemes, but it is now common," he said.

McGlone also cited longevity hedging, which he said could soon be opened up to smaller schemes.

"Medium-sized schemes need to keep an eye on developments and seize the moment when they become viable options," he said.

"In the meantime, they can ensure they have an operational and governance model that recognises their particular constraints, makes use of the limited resources in the most efficient way, and doesn't waste time on areas that are not a priority."

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