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Pensions risk eyed with short-term view

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  • Pensions risk eyed with short-term view

GLOBAL - Pensions risk is viewed primarily as a short-term financial risk and changes to pensions strategies are being increasingly driven by corporate accounting, according to the latest study by Hewitt Associates.

Details of the consultancy's 2008 Global Pension Risk Survey showed of the 171 schemes questioned in 12 countries, changes to asset and benefit packages are shifting away from the long-term perspective pensions executives have traditionally followed and are being influenced more by the needs of corporate sponsors.

More specifically, Hewitt said three-quarters of respondents view pension plan risk as financial risk, so 48% of those questioned now think their finance and treasury departments should be involved in crucial decisions about pensions risk, compared with 27% using human resource departments and 23% using risk departments.

This appears to tally with the cry from consultants in recent months who have suggested companies should use their treasury departments in essential risk decisions given the impact it can have on a corporate balance sheet.

Interestingly, only one-quarter of those questioned say they have no formal measure of their risk exposure, though Hewitt's evidence indicated UK and European plans are more advanced when it come to matching assets with liabilities than their counterparts.

At least one in four companies now discloses more about how handling pensions risk than is required by basic pensions disclosure, though officials say those who responded to the study were mainly listed companies as the remainder tended to be state pensions entities.

Elsewhere within the study, Hewitt appears to be advocating the use of ‘delegated management' - known generally as fiduciary management - as it advised pension funds and sponsors to "review governance arrangements for asset management" and commented "delegating to outside professional aspects such as manager selection and tactical asset allocation can bring speed of execution to match the market, while remaining within the chosen investment policy".

Approximately 40% of respondents said they had or were considering outsourcing tactical asset allocation, asset manager selection, liability matching and the introduction of new asset classes.

The vast majority of rspondents were based in Belgium, Canada, France, German, Ireland, Netherlands, Switzerland, the UK and the US, while the few remaining respondents were from three other nations.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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