Report: Risk of Ruin
Key findings:
- The strength of covenant was key, with only one in five UK schemes having a high chance of being able to deliver member benefits in full.
- For schemes with a sponsor rated as weak - representing around 20 per cent of total UK DB schemes - the 'risk of ruin' is estimated to be 66 per cent.
- Steps taken by Trustees in managing pension scheme risk may not be adequate to avoid the risk of benefits not being paid in full.
- Shorter recovery plans, including paying off deficits by lump sums, have limited impact on the 'risk of ruin'.
The report considers pension scheme risk from an Integrated Risk Management perspective, testing changes to funding, investment and management strategies against covenant strength by using sophisticated proprietary market- leading software and modelling tools.