UK - Companies are being forced to stand behind their pension promises like never before, says Watson Wyatt.
The consultants said said that there was an increase in schemes considering both short- and long-term funding targets, with buy out as the ultimate aim, particularly for schemes now closed to new entrants.
As a result, Watson Wyatt said there will be demand for a significant increase in exposure to bonds. Companies are being forced to reassess the risk in their chosen asset classes. In some cases the volatility risk imposed on their P&L and balance sheets might be so high that companies are unable to accept it.
Nigel Bodie, a partner in the benefits practice at Watson Wyatt, said: With the introduction of additional charges for under funded pension schemes, companies are under increased pressure to reconsider their investment and funding targets.
He added: Communicating the security of pension benefits to employees is a difficult task. Absolute security does not exist. There will always be some element of doubt and the cost of any form of guarantee at all comes at a high price. Solvent companies are needed to stand behind their pension promises.”
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