UK - Recent market volatility has highlighted the importance of risk management with the aggregate pension deficit of the UK's largest companies soaring as high as £30bn in mid-August before recovering to £6bn (€8.6bn) at the end of September, according to Mercer.
A recovery in equity markets from August 's lows coupled with an increase in corporate bond yields - a result of increased spreads following the turmoil in the credit markets - has seen the aggregate funding level of the FTSE 100 rise to about 98%.
Pension funds of FTSE 350 firms likewise remain well funded, with an aggregate funding level of 98% and a corresponding deficit of £9bn.
Market volatility due to contagion from the US subprime crisis in the last three months has caused huge fluctuations in the aggregate funding level and deficit or surplus of UK company pension schemes.
Mercer's quarterly FTSE 350 pension deficit survey reveals that if the average FTSE 100 firm had de-risked in last June, the volatility they have recently experienced would have been massively reduced.
John Hawkins, principal in Mercer's financial strategy group, said: "Any company adopting a de-risking strategy by switching from equity holdings into liability matching bonds at the end of June could potentially have improved their position significantly. This demonstrates the benefits of de-risking to scheme sponsors, in terms of funding and competitive positioning, and to members in terms of benefit security."
Hawkins said the traditional buy-out continued to be at the top of most companies' minds when considering a full de-risking or LDI solution.
However the research showed that average coverage on a buy-out basis remains relatively weak at only 78% with a corresponding aggregate deficit of £120bn - the same as at the end of June.
Additionally, recent research from Aon Consulting reveals little increase in buy-out activity over the last six months.
Aon's first quarterly buy-out market survey, published late September, found the number of business placed in the first two quarters of 2007 was lower than in the average per quarter in 2006, although the total value of business placed was much the same.
Hawkins at Mercer also pointed to other options. "These include the ability to hedge longevity risk with the use of longevity swaps and the sale of pension schemes to new ‘sponsors'," he said.
"As they are not regulated like insurers, these new sponsors can potentially offer competitive pricing compared to traditional buy-outs."