The Biggest Risk for DB Plan Sponsors: Interest Rates

(March 9, 2010) – A new survey from Aon Consulting shows interest rates will be the biggest issue facing defined benefit pension plan sponsors between now and 2013 in the US, UK and Canada.

According to the survey on pension risk management, top risks cited by respondents over the next three years include interest rates, which 58% of respondents voted as the No. 1 issue, longevity risk (21%), equity markets (15%) and inflation (6%). Additionally, respondents foresee longevity and equity market risks to be the two most difficult risks to eliminate.

The study revealed that UK plan sponsors are more adept at managing risk “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,” said Brendan George, senior vice president, in the release. “However, recent advancements in the U.S. and Canadian insurance and fund management industries give plan sponsors in North America sufficient choice today.”

According to Aon, the survey results highlight the following key issues for pension plan sponsors:

1) diligently measuring and monitoring all risk types;

2) setting asset mix and investment structures that are suitable to the plan design and individual needs; and

3) having solid skills and knowledge of risk management best practices.

Aon’s 72-page Pension Risk Management Global Survey was conducted during the last quarter of 2009. It consisted of responses from professional representatives of 41 investment management firms, mutual funds, investment banks, insurance companies and reinsurance companies in the US, UK and Canada.