Actuaries Towers Watson has urged defined benefit pension scheme sponsors and trustees to consider a host of de-risking options to ensure that they are protected in future economic downturns
The firm said 2013 had seen a 'record breaking' year for transactions with over 160 bulk annuity or longevity hedging transactions covering £14bn of pension liabilities so far.
However, it called on sponsors and trustees to not simply pick these 'flavour of the month' schemes.
Ian Aley, head of pension risk solutions at the firm said that some possible actions, such as using retirement transfer options - which would allow members to transfer DB pensions just before retirement to access a wider range of options - could better suit members' circumstances.
However, he said these have so far not been properly considered. Citing figures from its recent survey of nearly 100 pension schemes, Towers Watson revealed only 3% had used RTOs, although 30% expected to have this option in place within the next three years.
'Scheme sponsors can be confronted with a spectrum of options and the temptation is often to simply choose one after only considering the big ticket items,' Aley said. 'However, implementing any single option only makes sense if the full picture has been considered.
'We've seen the strain on sponsors' ability to maintain pension contributions during a recession. Now that economic conditions have improved and capital market losses pose less of a threat, there is a danger that some sponsors will move on to other priorities as the scheme no longer hurts. 'However, now is exactly the time that schemes should think about their future direction so that they won't be as vulnerable to a future financial downturn.'
The firm also said that de-risking should also include investment strategies such as diversification, inflation and interest hedging, and dynamic switching between different asset classes. Sponsors and trustees must work together to understand the risk levels being run if they are to figure out which de-risking option is most suitable.