UK - Almost one-half of UK's 200-largest defined benefit pension schemes are now in surplus on the back of improved performance in 2007, but evidence of widened volatility during that period will bring greater use of risk management tools in 2008, according to Aon Consulting.

Details of the consultancy's full-year scheme funding calculations show the major pension funds shifted from a collective deficit of £40bn to just £2bn in 12 months but experienced seriously turbulent shifts in the value of assets because of the application of international accounting rules.

More specifically, Aon notes the aggregate deficit shifted from £50bn in early March 2007 to hit a surplus peak of £12bn in September, based on FRS17/IAS19 accounting rules, while during a three-week period in December the difference shifted again from a £18bn deficit to a surplus of £11bn before slipping back.

It was during this turbulent year pension schemes saw the growth of solutions to help manage volatility risk, but it is anticipated more companies will start using these tools in 2008 "in an effort to mitigate against volatility", said Marcus Hurd, senior consultant and actuary at Aon.

"From a long-term perspective, 2007 will be remembered as the start of the era of pension surplus. Although there may be pitfalls along the way, stronger funding measures are likely to mean that pension scheme accounting surpluses will persist," said Hurd.

"Short-term measures, however, have posed a real headache. Turmoil in the financial markets…has produced dramatic swings. Such volatility has tested the resolve of even the most long-term investor."

He continued: "During 2008, we expect most schemes to take risk management seriously in a way that wasn't realistically available for the majority of schemes over the last few years."

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