Trustees’ top concerns are funding deficits and employer covenant, according to a new study.
The research, published by MetLife in the ‘UK Pension Risk Behaviour Index’, shows ‘funding deficits’ and ‘employer covenant’ overtaking issues such as ‘investment management style’ and ‘asset diversification’ in the concern stakes.
The ‘importance selection rate’, which measures the number of times a risk was chosen when presented to a group, saw funding deficits hit the top spot with 6 out of 10 selections – this figure was only 3 out of 10 last year. Similarly the employer covenant selection rate increased from 26% to 55%, bringing it into second place.
The increased emphasis in the importance of employer covenant is indicative to trustees understanding of how crucial employer covenants are to the smooth running of a scheme, reducing deficits and fundamentally protecting members.
Asset and liability mismatch came in third on the list, with longevity fourth and inflation, fifth.
It is clear that the recession has played havoc with schemes, regardless of investment management style. What’s most worrying is, although these particular risks have scored high on the list of concerns, they come with a low success rank. Trustees are still finding it hard to manage these aspects of a scheme and only ongoing communication with scheme sponsors, along with appropriate professional support, can restore confidence again.