Hewitt eyes risk as Watson Wyatt looks to DC
UK/EUROPE - Consultancy firm Watson Wyatt has unveiled a pension provider research database services detailing how schemes operate across Europe, at the same time as rival firm Hewitt is turning its attention to enhancing pension funds' risk and reward potential.
Watson Wyatt has unveiled its latest offering as part of a drive to create a single pan-European DC consulting business.
More specifically, this new service provides an extensive listing of all DC schemes in the market so products and schemes can be compared to suit an employer's needs and potentially cut their costs by adopting a pan-European approach to their DC arrangements, according to Gary Smith, senior consultant at Watson Wyatt.
"While multinational companies are realistically some way off being able to arrange fully fledged pan-European pension plans, they can still gain many of the benefits they are looking for by taking a consistent, managed approach to their various DC arrangements around the continent.
He continued: "Our clients are increasingly mindful of the economies of scale that can be achieved by establishing a pan-European governance process and using the same service provider across a number of countries. Our database enables us to pinpoint where and how such opportunities are - and indeed, are not - possible."
At the same time as Watson Wyatt has expanded its DC credentials, Hewitt is widening its consultancy offering to look more at the risks employers and pension funds face.
There are two key elements to the Global RIsk proposition - launched both in the UK and US - the first being the Pension Risk Index (PRI) which gives a company a snapshot assessment of the risk a company faces as result of its pension scheme exposures, by looking both at balance sheet vulnerability, and the potential impact on its earnings.
The second tool within this framework is the wider Pension Surplus Index, an interactive series of indices, showing the aggregate funding status for companies in the FTSE100, the Fortune 500 and other market indices. These charts plot daily movements in assets and liabilities, calculated using the mark-to-market methods required for corporate accounting disclosures.
scheme sponsors must reassess their objectives and evaluate all alternatives as the risk management solutions available to them continue to expand.
Andy Cox, head of Global Benefits Consulting at Hewitt, said the tools have been launched because many schemes sponsors are finding they need to react at a faster pace to ensure their strategies are appropriate to their investment and allocation needs.
"Events in financial markets in recent months have given a stark reminder of the centrality of risk to many organisations. As a result, the attitudes of pension scheme sponsors to risk are changing at an unprecedented pace. We have seen major changes in a short period of time to the way in which risk is perceived and in how companies and trustees react in terms of the financing and investment of their pension schemes. Financial analysts are increasingly factoring pension risk into share prices - penalising companies who do not have a clearly articulated strategy for identifying and managing those risks - and rewarding those that do," said Cox.
"This heightened emphasis has led many sponsors to believe that they do not and should not want to take any risks in relation to pensions. While this might be the right course for some, it is undoubtedly not the case for all. Many of the product providers just emphasise the risk reduction aspects of their products. We look at both sides of the equation - risk and return are just the two sides of one coin.
"By identifying and quantifying the risks in a pension scheme, we can help sponsors to take the right actions, which might mean reducing or removing risks, but in many cases will involve retaining or even raising the level of risk they run," he added.