MetLife Study Examines US vs. UK on Risk

(December 8, 2010) — Schemes in the US and the UK have drastically different views on most risk factors, a study by MetLife shows.  

The study, which asked plan sponsors in the US and the UK to to rank 18 different risk factors, showed US and UK defined benefit plans agree measuring liabilities is the most pressing risk factor affecting schemes, but disagree on most other factors. Different approaches between the two countries comes down, at least in part, to structural differences in the markets, the report concluded.

“While both countries are grappling with the challenges posed by increased longevity, the effect is more significant and the awareness more advanced in the UK,” the report said. “This is probably the result of the UK’s more common inflation adjusted pension structure, as the cost of indexed pensions is much more susceptible to changes in life expectancy than a fixed nominal pension.”

In the UK, longevity risk and employer covenant ranked high on their list of priorities, while US plan sponsors ranked longevity risk as tenth. Meanwhile, US plans ranked plan governance as the third most important risk factor, whereas UK schemes ranked it twelfth. And advisor risk ranked fifth in the US, while in the UK it ranked thirteenth.

“Despite the widely held assumption that the US and UK pension markets are, for the most part, virtually identical, the way that pension risk factors are prioritized is very different,” Dan DeKeizer, CEO of MetLife, said in a news release. “In part, this can be explained by how, historically, assets rather than liabilities have been the main focus of pension scheme management in the U.S., and also by the different frameworks and structures of the regulatory regimes in place.”

The report is based on responses from 166 US and 89 UK corporate plan officials. See Metlife’s chart below on the rank order of the risk factors by importance in the US and the UK.