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Mercer says schemes need to monitor risk

UK/EUROPE – Investment and benefits consultancy firm, Mercer Human Resource Consulting, has welcomed the call for companies to give mid-year pension scheme funding levels and warns schemes should now begin to actively monitor and manage risk.

The call refers to the recent call by credit ratings firm, Standard & Poor’s, in New York, that US companies should provide asset valuations and allocation details as of 30 June for defined benefit schemes.

Mercer believes this will affect US-owned companies in Europe, particularly the UK, where the disclosure of pension scheme funding levels has been adversely affected by the introduction of the accounting standard, FRS17.

The consultancy firm says funding levels of pension schemes are likely to have fallen significantly already this year as a result of declining equity markets but the latest figures available for most will relate to year end 2001.

Mercer’s warning comes hot off the heels of a survey published earlier this week by rival consultancy Hewitt Bacon & Woodrow, that suggested the average funding level for UK pension schemes has fallen to 87% since the beginning of the year and that the real damage shown up by FRS17 and the depressed markets won’t be known until next year.

Says Matthew Demwell, European partner at Mercer: “The recent fall in equity values has put defined benefit schemes under increasing pressure. Companies need to take action to understand the rapidly changing risks involved.”

Mercer suggests that risk analysis should be conducted at more regular intervals to assess the damage to balance sheets caused by declining stock values. That way, it says, decisions concerning investment strategy can be taken by managers and trustees alike to minimise losses and keep the risk/return ration optimally balanced.

Demwell adds: “Though Standard & Poor’’s made the request to US companies to produce mid-year data relating to their pension funds, there is bound to be a knock-on effect. UK companies in particular need to be aware of these developments.”

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