UK - Regulatory focus on plugging scheme deficits quickly is "unhelpful" and could actually damage businesses and pension funds, Hymans Robertson warns.
The consultant said continued improvement in the funding position of FTSE350 schemes last year - twinned with the removal of the accounting incentive to invest in return seeking assets - would increase the use of de-risking strategies this year.
However, it said current regulatory pressure to address shortfalls on a short time scale was not working. It added most schemes would benefit from a slower, more stable to approach to deficit management.
Hymans Robertson's FTSE350 Pension Indicator Report said scheme deficits fell significantly last year - from £142bn ($226bn) at the start of the year to a £109bn deficit at year end.
It said this was mainly down to the switch from RPI to CPI for scheme indexation - which is estimated to have cut deficits by £25bn - and stronger than anticipated investment returns, accounting for £15bn.
Head of corporate consulting Clive Fortes (pictured) said: "Following a number of substantial setbacks for pension schemes over the past decade, we expect that scheme sponsors will be looking for opportunities in 2011 to lock-in returns and de-risk.
"UK plc needs to take a fresh look at scheme funding and really question the rationale for any material risks in the pension scheme. In our view, most schemes, and scheme sponsors, would benefit from a slower, more stable, approach to funding. In this regard, the regulatory focus on speed of recovery is unhelpful and potentially damaging to businesses and to their pension schemes."
Fortes said schemes would look to lock in recent funding gains through de-risking their investment strategies and switch from return seeking assets - equities - to liability matching asset classes.
He also predicted a spate of buyout deals - with a quarter of FTSE100 schemes likely to complete a "material risk transfer deals" by the end of 2012.
Fortes added enhanced transfer exercise and pension increase exchanges would continue - despite The Pensions Regulator's guidance issued last year.
"The reduction in pension deficits in 2010 is good news for both schemes and their sponsors. However, the regulatory focus on the speed with which deficits are reduced is causing schemes to adopt unnecessary risks and is damaging for pension schemes and sponsors.
"A more sensible approach would be to reduce deficits over potentially extended periods but with a much lower risk profile."
The report also highlighted that year end IAS19 discount rates are not likely to be contentious and will group tightly around the AA yield of 5.4%. However, inflation assumptions will be widely dispersed, reflecting both the switch to CPI for some pension increases and continued subjective adjustments being made to market implied inflation.
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