Funding deficits most important risk for pension funds

Funding deficits resulting from the volatility of equities, and rising bond prices are the biggest and most important risks facing pension fund sponsors and trustees, according to MetLife Assurance’s 2012 UK Pension Risk Behaviour Index.

The insurer said that funding deficits were selected by 67% of respondents in 2012, up from 58% in 2011 and only 27% in 2012, showing the impact of current economic conditions on scheme funding. According to MetLife, funding risk was ranked 14th out of 18 risks facing defined benefit pension schemes, and it advised scheme sponsors and trustees to use agreed funding triggers to de-risk the scheme in order to protect it. MetLife also found that trustees and sponsors ranked the risks facing schemes in the same order, apart from asset diversification, which was placed fifth by trustees but 10th by sponsors. Daniel said: “It is encouraging to see scheme sponsors and trustees continuing to develop a more co-operative relationship to ensure the protection of their members’ benefits. As this coordinated approach continues, it will pave the way to well-considered, integrated solutions when market conditions permit in the future.”