US/UK - UK companies should start to monitor pension risks more closely after a move by Standard & Poor's (S&P) to rate US defined benefit pension plan sponsors, according to Mercer Human Resource Consulting.
In light of slumping equity values, S&P has called on US companies to give mid-year details on their pension scheme, including asset valuations and asset allocation. US-owned UK organisations will also be affected be the move.
Pension funding levels are likely to have fallen significantly since the end of 2001, when many companies will have last provided information for their annual reports, added Mercer.
Matthew Demwell, European partner at Mercer, said: The UK market must surely take notice of these developments and UK companies can expect similar attention. The recent fall in equity values has put defined benefit schemes under increasing pressure. Companies need to take action to understand the rapidly changing risks involved.
Mercer advocates regular risk analysis to evaluate how market movements will impact balance sheets. Mercer also suggests companies should benchmark themselves to assess their relative risk position.
Demwell added: Companies will be able to better understand and manage their pension risks if they regularly monitor their funding position and assess the impact of future events. They can then communicate to the market how they are addressing these risks.
More recently, S&P also outlined its intentions to extend ratings to European pension funds.
But in an earlier report former UK Institute of Actuaries pensions board chairman Peter Tompkins questioned who S&P was targeting, claiming it was straying into the investment consultancy business.
“Credit ratings are very useful if you’re an investor and you want to choose between different things. The problem with pension funds is members have no interest in ratings because they haven’t got a choice,” he said.
“And if it’s not investors, then it’s the trustees or the employers who might be interested. But if that’s the case, that’s what I call investment consultancy.”
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