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
  • June 2017
06

Third of DB pension schemes could fail to pay members

Open-access content Monday 10th July 2017 — updated 5.50pm, Wednesday 29th April 2020

One in three defined benefit (DB) pension schemes in the UK are at risk of failing to pay their member’ benefits in full, according to research by Punter Southall Transaction Services (PSTS).

2

It reveals that just one in five schemes have a high chance of being able to deliver on agreements in full, while the same amount have a 66% chance of failing.

In addition, it was found that the typical scheme has already extended recovery plans beyond the average period of eight years, suffering a significantly higher risk of failure as a result.

"Since the introduction of the Pension Protection Fund in 2005, more than 10% of DB schemes have failed to deliver their promised benefits in full and around 1% of schemes fail each year," PSTS principal, Richard Jones, said.

"Over the long-term, our projections suggest that around one third of UK schemes will fail to deliver members' benefits in full."

The research considers pension schemes from an integrated risk management perspective, testing covenant strength against changes to funding and investment/management strategies, using software and modeling tools.

It was found that shorter recovery plans, including paying off deficits by lump sums, have a limited impact on safeguarding benefits, as they are just a small acceleration of monies the scheme would expect to receive any way.

The findings show that investment risk within a pension is borne almost entirely by the sponsoring employer, and that increasing the level of technical provisions held by a scheme, while reducing risks to benefits, can result in a very high price.

Instead, it was concluded that contingent assets could be a very effective method of reducing risk to members' benefits if they are structured correctly, while trustees should be more supportive of proposed liability management exercises.

"We can see that some steps favoured by trustees in managing their schemes - such as acceleration of deficit payments and de-risking - may not be significant in reducing the chances of members not receiving their benefits in full," Jones said.

"With the increasing focus of the Pensions Regulator on Integrated Risk Management, trustees can use technology and modelling tools to consider their strategy in the round, taking account of the impact that covenant, funding approach and investment strategy has on the likely outcomes for their members."


Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession

This article appeared in our June 2017 issue of The Actuary .
Click here to view this issue

You may also be interested in...

2

UK risk appetite dented

Some 22% of UK chief financial officers (CFOs) think now is a good time to take risk onto their balance sheets – down from 26% in the first quarter of this year.
Monday 10th July 2017
Open-access content
2

Biggest rise in motor insurance premiums recorded for seven years

Average comprehensive motor insurance premiums in the UK increased by 8.4% to £847 during the second quarter of this year – the largest quarterly jump recorded since 2010.
Tuesday 11th July 2017
Open-access content
2

Financial services sector booming

The UK’s financial services sector experienced a significant improvement in business conditions in the second quarter of this year, according to a survey of firms by the CBI and PwC.
Tuesday 11th July 2017
Open-access content
2

Productivity hit by health and wellbeing issues

One third of the UK workforce may have a health or wellbeing issue, with the most common being anxiety, depression and stress, according to research by PwC published today.
Friday 7th July 2017
Open-access content
2

Insurers prevent £25m of fraudulent claims every week

There were 125,000 dishonest insurance claims detected in the UK last year, with a total value of £1.3bn – the equivalent of £25m every week, according to analysis by the Association of British Insurers (ABI).
Friday 7th July 2017
Open-access content
2

Proposed ban on pension cold calling shelved

Plans to clamp down on opportunists taking advantage of pensioners through scam phone calls have been omitted from the UK government’s Financial Guidance and Claims Bill.
Friday 7th July 2017
Open-access content
Filed in
06
Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Reserving Analyst

London (City of)
Negotiable
Reference
149485

Senior GI Modeler - Capital and Planning

London (Central)
£ excellent
Reference
149436

Risk Oversight Manager

Flexible / hybrid with a minimum of 2 days per week office-based
£ excellent
Reference
149435
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