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The Actuary The magazine of the Institute & Faculty of Actuaries

Letters: Too many risks


It is a truth, sadly not universally acknowledged, that a pension scheme in possession of risky assets cannot want to provide guaranteed benefits. I wish Hilary Salt success in her crusade to encourage CDC schemes (bit.ly/ActuaryHSalt) but her riling against DB pension scheme trustees reducing investment risk is misplaced. Her ire should be directed at the politicians who decided that DB benefits should be guaranteed. Trustee and regulatory desire for providing guaranteed benefits is perfectly natural given our legislative framework. 

Hilary says: “As a trustee, if you don’t take risks, you guarantee it will never get better”. But members of DB schemes rarely, if ever, see their benefits improved as a result of trustee investment in risky assets such as equities. The holding of risky assets in DB pension schemes typically benefits employers rather than members. Trustees may be able to rationalise that this is in members’ interests, but it should come with a requirement for trustees to give a stark risk warning to members that their benefits are not guaranteed and are payable only so long as the employer continues in operation.

Charles Cowling

25 March 2019

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