Trustees of UK private sector defined benefit schemes see their greatest challenge as ensuring their approach to funding is fully integrated and risk based
That finding has come from actuarial firm Hymans Robertson's second annual Trustee Barometer survey.
More than two-thirds of the 100 respondents highlighted managing scheme risk and knowing when to de-risk as major challenges. Other important issues cited were dealing with freedom and choice in pensions, member communications and regulatory change.
More than half of respondents feared that their scheme's health would be at risk were interest rates to remain low over the next five years.
Questioned on their objectives, 81% said self-sufficiency was their end goal while even in the very long term, only 15% were targeting buyout. One quarter hoped to meet their objectives within 10 years and 10% within a 10-15 years period, while 40% did not know or had no specific timeframe in mind.
Calum Cooper, a partner at Hymans Robertson, who heads up its work with defined benefit trustees, said concerns about approaches to funding being fully integrated and risk based arose "off the back of the Pension Regulator's annual statement this year, which delivered a strong message to trustees about the value of an integrated risk-based approach.
"However, demonstrating that your approach is integrated isn't enough - it's important to ensure that it actually is."
Mr Cooper added: "This approach, as opposed to traditional methods that overlook the value of risk reduction, brings a more complete understanding of scheme's risks and their interdependencies, which helps trustees make better decisions to manage and mitigate risk."
The survey results showed that many trustees "won't have a real grasp of the risk of not being able to pay the benefits promised to members", he noted.
While conventional wisdom held that longer recovery periods entailed greater risk, this need not be the case if risks were reduced in other ways, Mr Cooper said, for example by reducing allocations to growth assets and instead focusing on ensuring income is available to meet outgoings, and putting in place higher liability protection levels.
He noted that the regulator's 'Purple Book' showed the average scheme sought to move to full funding within 8-9 years, but Mr Cooper said pushing timescales and cash commitments to 20 years, for example, could enable significant asset risk reduction for the majority.
