Hymans Robertson, the specialist pensions advisory and management firm, has published a report looking at the health of the UK’s FTSE 350 companies pension schemes. The report finds that the aggregate deficit, or shortfall, in these pension schemes has seen a £33 billion improvement. As a result Hymans Robertson suggests that pension schemes focus will turn from deficit reduction to risk management during the coming year.
Deficit and shortfall reduction has been the top priority among pension schemes over the last few years but now that they are making some progress on these issues Hymans expects them to turn their attention to risk transfer and risk management. Longevity risk is an increasingly high profile issue for pension schemes and risk transfer or getting some liabilities off their books and into the capital markets seems to be the best approach to manage that risk.
Hymans Robertson suggests that they expect to see as much as a quarter of UK FTSE 100 firms participating in a material risk transfer by the end of 2012. That could be through longevity hedging or a longevity swap, a buy-out or a buy-in.
Of course, that will push the burden of the shortfall or deficit onto the counterparty in some cases and it will still have to be dealt with but right now companies are keen to transfer some or all of their pension risks off their balance sheets.