UK defined benefit pension schemes are continuing to miss out on opportunities to reduce risk because of a lack of information needed to track accurate and real-time valuations, PricewaterhouseCoopers said today.
Of the 150 DB schemes polled in PwC's annual pension scheme survey, just 11% said they have access to real-time asset and liability updates, making it difficult and expensive to track market opportunities and monitor pricing triggers. It highlighted that delays in information could make the difference between a deal going through or not, and whether the price the deal was executed on is commercially sound.
Raj Mody, head of pensions at PwC, said: 'The uncertainty over just how much companies will need to pour into their pension schemes to manage their deficits means many are looking at opportunities to remove the risk from their balance sheets.
'There is strong appetite in the market for risk transactions, such as buy-ins, buy-outs and longevity hedging. We know pension schemes representing over £100bn of liabilities are currently considering some form of third-party de-risking transaction, but whether this interest converts to deals will depend on a number of factors. One of the barriers will be schemes not having access to accurate information when they need it, meaning they can't get the most effective terms for the deal, or in some cases deals not going ahead.'
According to Mody, schemes looking to transact need to be able to monitor their position accurately enough on a regular and rapid basis. He said: 'Buyout tracking presents a particular challenge, as insurer pricing captures nuances in market movements that lie beyond most daily funding tools.
'This means it can take several weeks or months for useful information to become available, by which time opportunities pass. This no longer needs to be the case as technology developments for companies and trustees means they can now have direct access to the information they need, enabling them to execute a risk reduction deal at an attractive time and price,' he said.
Mody added that 'off-the-shelf' scheme actuary's estimates of buy-out could often be overstated, containing margins for prudence.
'For schemes where de-risking is on the agenda, it pays to be able to track more accurate valuations which reflect currently available commercial pricing. This approach is more likely to lead to better informed decisions and quicker deal execution.'
