Swiss Re Insurance-Linked Fund Management

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UK pension funds see longevity risk as biggest threat to funding levels


The results of a poll conducted in July 2012 amongst trustees, finance directors, and other pension fund executives from 51 different UK pension funds, show that the pension funds consider longevity risk as the biggest single threat to their funding levels. Respondents were asked to rank a series of risks according to potential for impact on the pension fund, longevity risk was ranked as the biggest risk, followed by falling equity markets and rising inflation.

This is timely information given a number of articles we’ve published recently on longevity risk. Just last week we wrote that only 22% of pension plans said they had considered hedging longevity risk in response to another survey. As we wrote at the time, it is concerning that pension funds are clearly aware of the risk that increasing longevity poses to them but are perhaps not making preparations to deal with it as quickly as some might feel necessary.

This survey of UK pension funds was run by SEI, a global provider of asset management and investment solutions. Ashish Kapur, Head of Solutions for SEI’s Institutional Group in the EMEA region, commented; “Longevity is a risk that has received a lot of attention over the last two years. This is not surprising given the regular reports in the press about increasing life spans and the fact that it is difficult for actuaries to make accurate predictions about ‘average’ mortality. This increase in attention, along with a reduction in market volatility to pre credit-crisis levels, could account for a renewed focus on longer-term risks like longevity, as reflected in the results of this survey. However, with the market for longevity insurance in its infancy and a variety of other risks facing schemes, trustees need to take care when making decisions about how to prioritize and manage risk. Before trustees decide to hedge these risks, it is important that they assess and quantify each risk facing the scheme and have a long-term plan in place to manage these risks. Trustees also should consider ongoing monitoring of their risks.”

Read our other recent articles on longevity risk:

A liquid capital market in longevity risk will be vital: Swiss Re

A capital market for longevity risk transfer is not far away

Heineken seeks longevity swap quotes for pension plan risk transfer

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