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.
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The Pensions Regulator (TPR) has granted Now Pensions a six-week extension for its master trust authorisation application after the 31 March deadline, PP can reveal.