GLOBAL - Risk aversion among banks and a weighty legal burden caused by the global credit crisis has severely hampered pension schemes abilities to use derivatives-based liability hedging, according to Watson Wyatt.
Collateral and termination clauses required by banks are also more penal, which is ironic considering that the firm claimed many pension funds had higher credit quality than banks.
The costs of insuring against bank default has increased six-fold during the past six months, which has deterred many banks from retaining unhedged risks on their balance sheets. Funds have therefore been forced to delay implementing these risk-reducing strategies.
Watson Wyatt said while there was persistent demand for Over-The-Counter (OTC) swaps, the delays as a result of ISDA documentation would likely hinder the wider adoption of these products.
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers