Posted on 08 Mar 2010
Aon Consulting, the global human capital organization of Aon Corporation, today issued its survey of top global financial services organizations that provide pension risk management products and solutions to plan sponsors in the UK, U.S., and Canada. Results show that 58 percent claim interest rates as the biggest issue facing Defined Benefit (DB) pension plan sponsors between now and 2013, followed by longevity risk (21 percent), equity markets (15 percent) and inflation (6 percent).
The survey reveals that UK DB plan sponsors appear to be further along in implementing innovative solutions to key issues than their counterparts in the U.S. and Canada. Moreover, outside of interest rates, respondents note longevity and equity market risks as the two most difficult risks to mitigate and remove (see chart below for an overview of the regional breakdown).
"Historically, the risk management products and solutions available to plan sponsors in the UK have been more advanced than those in the U.S. and Canadian markets," says Brendan George, senior vice president and global survey lead. "However, recent advancements in the U.S. and Canadian insurance and fund management industries give plan sponsors in North America sufficient choice today.
"Overall, current DB plan governance structures do not support rapid implementation of new strategies, and the tendency has been for plan sponsors to take on risk in order to improve their funded position. However, improving funded status is dependent on increasing long-term interest rates and strong global equity markets."
Survey results equally emphasize three key guiding principles, to which pension plan sponsors must pay close attention: (a) diligence of measuring and monitoring all risk types, (b) setting asset mix and investment structure suitable to plan design and individual needs, and (c) having solid skills and knowledge of risk management best practices—a telling factor that reveals how many large multinationals recognize the growing need for plan sponsors and trustees to remain extremely well versed and educated in the complexities of pension risk management.
To review details and access the complete findings of Aon's 2010 Pension Risk Management Global Survey, visit http://www.aon.ca/pubs/PRPS/Pension-Risk-microsite.html.