Case Study

The UK de-risking market

Financial Services

The Requirements

The de-risking market continues to expand and evolve, with innovation and efficiencies increasing the range of options available to schemes of all sizes.

The aim was to understand trustee and employer views on the de-risking options available to them.

Is the full range of options understood, and are there any preconceptions about the ease of accessing the options for schemes of different sizes?

The Solution

Risk management is a vital component of running a pension scheme.

Schemes have arguably never had access to more tools with which to carry out the task. The insurance market offers several ways in which to mitigate longevity risk, including through longevity swaps, buy-ins, or full scheme buyouts.

Solutions that sit outside the insurance market include the ‘new kids on the block’ – commercial consolidators and capital backed solutions – as well as tried and tested methods of de-risking interest rates and inflation through liability driven investment.

The report was based on the findings of a quantitative survey of 100 pension scheme representatives and in-depth interviews with six professional trustees.

Our survey indicated that scheme members living longer than anticipated was the second most cited threat to pension funds’ future ability to pay member benefits – but are they right to worry?

Read the full report here to find out.

The Results

The development of the risk settlement market over recent years has presented schemes with an array of options. Whether schemes want to explore hedging specific risks, such as longevity, or insuring tranches of members through a series of buy-ins, insurers have the capacity and flexibility to meet their needs.

The limitations of size that were barriers to the insurance market just a few years ago are no longer present. The market is open to schemes of all shapes and sizes.

The risk settlement market always affected by uncertainty, it is therefore more important than ever that schemes are ready to seize the opportunities when they arise.

The research demonstrated that it is vital for schemes to ensure they are fully aware of all the de-risking options open to them. It is clear that many schemes are concerned about risks such as longevity, investment volatility and covenant strength and are uncertain about the best way to manage these to a satisfactory conclusion.

Exploring the full array of risk management tools will help keep a trustee board on top of its position and prepare them to face the next challenges.

Read the full report here.


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