SEI Poll: Pension Schemes See Increasing Longevity As Biggest Risk To Funding Levels
LONDON, 24 Sept., 2012 – The results of a poll published today by SEI (NASDAQ:SEIC), a leading global provider of fiduciary management, reveal that U.K. pension schemes see increasing longevity as the greatest risk to the funding level of their schemes. When respondents were asked to rank a series of risks according to their impact on the pension scheme, longevity ranked as the biggest, while falling equity markets and rising inflation ranked second and third respectively.
Commenting on the results of the poll, Ashish Kapur, Head of Solutions for SEI’s Institutional Group in the EMEA region, said:
“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.”
Over the three months to 31 March 2012, the U.K. FTSE rose in sterling terms by 9 percent. This provided a potential opportunity for U.K. pension schemes to lock-in funding level out-performance by switching a portion of their portfolio’s growth-oriented assets into liability-matching assets. The results of the poll found that while some pension schemes actively decided not to lock-in out-performance for a variety of reasons, including cost and lack of equity exposure, just under a third (30 percent) were also unable to take advantage of this strategy either because they were not aware of the impact on their funding level at the time, or were unable to take action quickly enough.
The poll also asked respondents what changes they had made to their governance structure in the last 12 months to improve the speed of their decision-making. Two-thirds of respondents had made some form of change; the most popular change was setting up de-risking/re-risking triggers (39 percent), while the next most popular was increasing the frequency of trustee meetings (20 percent).
Ashish added, “These findings demonstrate potential flaws in the governance model of many U.K. pension schemes, especially those with a quarterly meeting cycle. With current meeting schedules it is difficult for pension schemes to act quickly enough to capitalize on opportunities, or protect against the downside. It is encouraging to note that pension schemes recognize the need to meet more frequently so they can improve their decision-making abilities.”
The poll was conducted in July 2012 amongst trustees, finance directors, and other pension fund executives from 51 different U.K. pension funds. None of the respondents were institutional clients of SEI. The full poll results are available by e-mailing firstname.lastname@example.org .
About SEI’s Institutional Group
SEI’s Institutional Group is the first and largest global provider of outsourced fiduciary management investment services. The company began offering these services in 1992 and today acts as a fiduciary manager to 450 retirement, nonprofit and healthcare clients in seven different countries. Through a flexible model designed to help our clients achieve financial goals, we provide asset allocation advice and modeling, investment management, risk monitoring and stress testing, active liability-focused investing and integrated goals-based reporting. For more information visit: http://www.seic.com/institutions.
SEI (NASDAQ:SEIC) is a leading global provider of investment processing, fund processing, and investment management business outsourcing solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of June 30, 2012, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $424 billion in mutual fund and pooled or separately managed assets, including $182 billion in assets under management and $242 billion in client assets under administration. For more information, visit http://www.seic.com.
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