(March 13, 2012) — Mid-sized pension funds in the United Kingdom are eager to offload their liabilities through buyouts or buyins but do not have the time to do it, a new survey by consulting firm Aon Hewitt has found.
“In the mid-market, there are so many different things schemes need to be doing and they only have limited resources — it’s a combination of time, money, resources, and expertise,” Paul McGlone, principal and actuary at Aon Hewitt told aiCIO.
He noted that while schemes of all sizes face challenges, obstacles in the mid-market environment are most acute without adequate economies of scale. The problems, he said, are exacerbated by low yields, adding more pressure to derisk.
From an investment point of view, McGlone said, the number of survey respondents using trigger points within their portfolios to force immediate allocation adjustments based on the market has mounted dramatically. The survey found that 30% of respondents currently use trigger points, compared to around five years ago when trigger points barely existed among mid-sized UK schemes.
The popularity of trigger points to monitor investments within scheme portfolios reflect a greater awareness of market volatility along with a need to better control it — a term Aon Hewitt refers to as “dynamism” or a more active response to market conditions.
“This is a landmark piece of research which looks into the largest segment of the pensions market – one which has a tendency to be overlooked – despite it accounting for more than 61% of all pension schemes in the UK,” McGlone added in a statement. “The figures from our survey show that there is a heightened focus in the industry on the issues facing medium-sized schemes and on the specific challenges they pose to the trustees that run them and their sponsoring organizations.”
Aon Hewitt’s survey polled over 200 schemes in the UK with over £30 billion in combined assets and represent over half a million members.
In addition, the study found that while liabiltiiy-driven investment has been traditionally most popular among larger schemes, mid-market schemes are now also embracing the investing strategy.