Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • August 2012
08

Pension schemes 'must take action to address eurozone crisis'

Open-access content Tuesday 21st August 2012 — updated 1.38pm, Tuesday 5th May 2020

The enduring eurozone crisis poses a number of risks to pension schemes which make it imperative for employers and trustees to consider how they can protect their employees retirement savings, Mercer said today.

With no end in sight to the difficulties in the single currency bloc, the consultancy said schemes should undertake a 'thorough analysis' of potential ways in which the crisis could affect their individual circumstances.

In particular, it highlighted the severe impact that continued market volatility could have on schemes with an over-reliance on assets linked to economic growth such as equities. Low yields on government bonds also mean they are no longer seen as the safe haven they once were.

Tony Pugh, European head of defined contribution consulting at Mercer, said: 'Schemes should review their long-term investment strategy on an on-going basis to ensure it is appropriate. Risk mitigating strategies such as increased diversification, for example to non-traditional asset classes, and communicating to members the importance of diversified portfolios, should be considered.'

Low bond yields have also contributed to a steep rise in annuity prices which, in turn, will reduce retirement incomes for members of DC schemes. With significant price differences between annuity providers in many markets, Mercer said scheme sponsors and trustees should look at how to secure members the best possible deal, such as by using an open marker adviser.

The crisis has also increased the risk of inadequate benefits for retirees as a result of sustained low contribution levels combining with poor investment returns, high annuity rates and falling state benefits.

According to Mercer, this could lead to more employees deferring retirement - a situation that could leave employers facing a higher cost of insured benefits, the blocking of promotion opportunities and reputational damage.

Eventually, employees could start placing a higher emphasis on the level of employer contribution to DC plans when choosing which firm to work for, the consultancy said.

Mr Pugh explained: 'Trustees and sponsors should establish defined objectives for their DC plan and analyse what impact having inadequate plans in place might have on their business. To stay competitive it's also important to do some benchmarking against competitor plans.'

'Providing employees with alternative ways of saving might not only better serve employee needs and help with diversification, it could also deliver better value for money.'

Mercer also warned of the potential for DC providers to be put at risk by the impact the eurozone crisis is having on financial institutions. While there are few case studies to demonstrate what would happen in practice should a DC provider collapse, schemes should give consideration to their potential exit plan if their provider is considered at risk, it said.

This article appeared in our August 2012 issue of The Actuary.
Click here to view this issue
Filed in
08
Topics
Global

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Deputy Head of Capital Modelling

London (Central)
£110000 - £130000 per annum
Reference
144789

Head of Analytics (Actuarial)

London (Central)
£130000 - £165000 per annum
Reference
144788

Pensions Actuarial Analyst - GMP Equalisation

London (Central)
£ dependent upon experience
Reference
143745
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ