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De-risking high on clients’ agenda for 2012, says Schroders

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Over half of the respondents to a recent Schroders survey of pension funds say that de-risking is on their scheme’s agenda for this year, whether its growth assets or risk management.

According to the survey, the de-risking mechanisms that clients are most likely to use would be: Review of growth allocation in general (36%); LDI (28%); Reducing overall growth allocation (18%); and Longevity hedging (14%).

The survey also revealed that there was no single overall barrier to a scheme implementing a de-risking framework. Some 32% of respondents cited the size of their scheme which would make it unsuitable, 22% a lack of understanding from the trustee group, 21% cited various costs, 18% said lack of understanding from the corporate sponsor and 7% cited the reason because of complex documentation.

A little over half (56%) of the respondents revealed that the average time for a pensions scheme to make an investment decision (i.e change of asset allocation) was over a month, while 17% revealed that they were able to make immediate investment decisions and 27% would usually be able to make an investment decision within a month.
 
When it comes to monitoring a scheme’s funding level, the survey revealed 6% reviewed weekly, 22% quarterly and 28% reviewed funding levels less regularly than that but the majority (44%) reviewed their funding level on a monthly basis.
 
Exactly half of the respondents (50%) said that they had a target end point for their pension scheme, beyond full funding relative to the technical provisions and half (50%) had not.  Again when asked if this was either buy-out of self sufficiency this revealed the same split.
 
Mark Humphreys (pictured), Head of UK Strategic Solutions at Schroders, says:
 
"The recent market turmoil has put de-risking firmly on the Trustees’ agenda for 2012. However our survey highlights what we believe is a wider trend – infrequent monitoring and slow decision making may mean that schemes are not set up to take advantage of opportunities to de-risk when they arise.
 
"Another interesting finding from our survey is the willingness of many schemes to engage with a wide range of parties* when forming investment ideas.  Around 36% of the trustees that responded to our survey said they would turn to their fund manager, 67% said to an investment consultant, 48% said to the scheme actuary and 27% said to other advisers including internal resources."

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