According to research unveiled at a recent pensions conference, a survey of 44 actuaries working in pensions has shown that less than 15% of pension schemes had 50% or more inflation linked assets matching their liabilities.
The research, by Robert Gardner of Redington and Jay Shah of Pension Corporation also revealed that that the proportion of matching assets relative to liabilities in these schemes was between 25% and 35% meaning that they were, in effect, structurally underhedged.
However, of the actuaries surveyed, 75% of them said their schemes would “likely” or “almost certainly” carry out a buy-out or buy-in in the next three years and 80% would “likely” or “almost certainly” carry out a liability management exercise.
Commenting on this, Robert Gardner said: “The switch in statutory indexation of RPI to CPI has impacted schemes looking to de-risk, but, as the first set of our survey results show, pensions schemes can do a significant amount of first order inflation de-risking using RPI before they need to worry about the secondary order RPI/CPI basis risk.”
Jay Shah added: "Pension schemes are continuing to take big risks of inflation eroding away investment returns and funding positions deteriorating. So it is good news that de-risking is now at the top of the agenda and that buy in and buy out will become commonplace."
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