UK - Four-fifths of UK pension funds intend to seek additional contributions from sponsoring companies over the next two years, Aon Hewitt has said.
Additionally, the consultancy’s Global Pension Risk Survey reveals that 69% of respondents hope to reduce risk in future and become self-sufficient, despite the overwhelming interest in sponsor contributions in the short term.
Kevin Wesbroom, UK head of Global Risk Services, said there was a sense this year that schemes would try to take risk out of the equation. However, he warned that there was “no silver bullet” for de-risking a scheme.
“The difficulty of this is compounded by the fact that, unless deficits are repaired purely by large additional contributions, many schemes still need to continue taking on risk in order to reduce risk in the future,” he said.
Wesbroom added that sponsors and trustees were now settling in for the long march of de-risking, as well as completely eradicating risk, with liability-driven investments (LDI) being cited as one of the more interesting investment options.
In addition to the 30% expressing an interest in LDI, just over one-third of funds said they would consider alternative assets in the future, while half of UK schemes said they planned to reduce equity exposure to their domestic market.
John Belgrove, UK investment lead, Global Risk Service, said the shift toward LDI assets was to be expected in light of schemes desire to de-risk.
“The desire to spread risk across different asset categories and markets has led to more global equity portfolios and the increasing appeal of alternative sources of returns such as hedge funds, property, commodities, currency and infrastructure,” he said.
Aon Hewitt also found that the number of DB schemes now closed to new entrants had risen to 90%, with the number of pension funds freezing their plans for existing members more than doubling in the last three years.
The survey noted further that schemes with less than £100m in assets under management were significantly more likely to freeze plans, with 45% doing so compared with only 14% of schemes over £1bn.
Plaul McGlone, UK benefits lead, said that the measure, previously viewed as problematic due to negative publicity, was now regarded as less of a risk.
“That said,” he added, “while schemes may now feel greater strength in numbers, the reality is that early adopters who froze their schemes are likely to achieve their aims much sooner - and at a much lower cost - than the next wave of freezers.”