Accounting volatility key pension concern

The consultant's 2008 Global Pension Risk Survey - of 171 schemes in 12 countries - said pension risk is no longer an inconvenience for sponsors but is of "life-threatening" importance.

Key findings among the 43 UK participants included the view that pension plan risk is embedded in corporate thinking as being short-term and focused on controlling accounting driven measures.

Some 60pc of UK respondents rated costs from volatility in accounting profit and loss as their key pension risk concern.

Hewitt head of global risk services UK Kevin Wesbroom said: "The results have highlighted that the sponsors who are weathering the storm best are the ones that have adopted leading edge practices.

"In the majority of cases, they have also made greater efforts to monitor and to understand the risks they are facing and then made decisive moves to modify benefits to protect the sponsor."

Other key findings included 30pc of UK plans are already outsourcing, or are considering outsourcing, more of the implementation of their asset management - covering areas such as the hiring and firing of managers, tactical asset allocation changes and the implementation of liability driven investment and other strategies.

Hewitt said the twin drivers behind this greater willingness to delegate these functions were the increasing complexity of pension fund investment arrangements and the need for speedy - real-time - decision making in today's rapidly changing markets

Two-thirds of UK pension plans indicated that they expected to consider buying out all or part of their pension liabilities within the next 10 years. Half of the plans expected to consider this action within the next five years.

Improvements in longevity appeared high on the list of risk factors concerning companies - more so in the UK than equity market risk. The survey said this reflected the great emphasis placed on longevity in funding and accounting discussions, where the combination of extra life expectancy and indexation of pensions leads to significant additional liabilities.

Nearly 40pc of plans had no policy for dealing with their interest rate and inflation exposures, despite the fact that they rated interest rates as the biggest component of their overall risk budget.