Schroders recently asked a group of pension funds their thoughts* on defined benefit strategies, governance and de-risking.
Defined Benefits: Governance
A little over half (56%) of the respondents revealed that the average time for a pensions scheme to make an investment decision (i.e change of asset allocation) was over a month. 17% revealed that they were able to make immediate investment decisions and 27% would usually be able to make an investment decision within a month.
When it comes to monitoring a scheme's funding level, the survey revealed 6% reviewed weekly, 22% quarterly and 28% reviewed funding levels less regularly than that but the majority (44%) reviewed their funding level on a monthly basis.
Exactly half of the respondents (50%) said that they had a target end point for their pension scheme, beyond full funding relative to the technical provisions and half (50%) had not. Again when asked if this was either buy-out of self sufficiency this revealed the same split.
Defined Benefits: De-risking
51% of respondents commented that de-risking is on their scheme's agenda for this year, whether its growth assets or risk management.
The de-risking mechanisms* that clients are most likely to use would be:
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Review of growth allocation in general (36%)
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LDI (28%)
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Reducing overall growth allocation (18%)
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Longevity hedging (14%)
Our survey also revealed that there was no single overall barrier to a scheme implementing a de-risking framework. 32% cited the size of their scheme which would make it unsuitable, 22% a lack of understanding from the trustee group, 21% cited various costs, 18% said lack of understanding from the corporate sponsor and 7% cited the reason because of complex documentation.
Mark Humphreys, Head of UK Strategic Solutions, commented:
"The recent market turmoil has put de-risking firmly on the Trustees' agenda for 2012. However our survey highlights what we believe is a wider trend - infrequent monitoring and slow decision making may mean that schemes are not set up to take advantage of opportunities to de-risk when they arise.
"Another interesting finding from our survey is the willingness of many schemes to engage with a wide range of parties* when forming investment ideas. Around 36% of the trustees that responded to our survey said they would turn to their fund manager, 67% said to an investment consultant, 48% said to the scheme actuary and 27% said to other advisers including internal resources."
* Source: Schroders. Multiple choice questionnaire completed, participants were asked to select all that apply. Survey undertaken in March 2012.
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