Derisking your pensions
Over the past few years, pension funds have become an increasingly important issue for companies. A combination of tightened accounting regulations, dramatic market fluctuations and an ageing population has highlighted as never before the risks inherent in many pension funds. Despite this fact, the importance of corporate pensions as a benefit is only likely to rise, as people live longer and as state pensions decline. It is therefore important that companies can preserve the benefit of pensions while removing or reducing the risk.
International pension risk – how complexity increases risk
Companies operating pension plans in several countries face an additional element of risk: due to differences between local regulations and international reporting standards (IFRS/FAS), a sponsoring company may have a different and even conflicting view of the state of its different pension funds. In addition, it is often difficult to coordinate and control the different pension funds in each country.
Reducing pension risk – dedicated solutions
- Liability Driven Investment (LDI) – LDI allows a pension fund to remove unrewarded interest and inflation risk by matching its liabilities with assets.
- Longevity swaps – Longevity swaps enable pension funds to protect themselves against the risk that their employees will live longer than previously predicted. Longevity swaps allow companies to reduce the volatility of their pension plans.
- Pension buy-ins – Buy-ins enable companies to derisk distinct groups (or cohorts) of members without discriminating against other members. Buy-ins are insurance policies that are regarded as a separate asset class on the pension fund balance sheet.
- Pension buyouts – Buyouts remove all pension risks by enabling a company to completely transfer the accrued pension liabilities of a defined benefit scheme to another provider in return for a premium. In phased buyouts liabilities are transferred in agreed stages.
More information
AEGON Global Pensions can help reducing your pension risks. For more information, please read our brochure or contact us.