Report: Risk of Ruin

Around one in three defined benefit (DB) schemes in the UK are at risk of failing to pay member benefits in full, according to a Punter Southall report.

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.