UK trustees rank pension scheme investment as their greatest challenge

Implementing the right investment strategy for the future is the primary concern facing pension trustees, according to new research released today by Aon Consulting, a leading pension, benefits and HR consulting firm.

Aon Consulting surveyed 250 trustees of Defined Benefit (DB) schemes, asking them a variety of questions about the decision-making challenges they face and what consideration has been given to investment options.

When asked to rank the most important or challenging issues facing their scheme in the future, over half (51 per cent) of trustees stated investment as the most important challenge. This reflects an increasingly diverse and complex investment climate and the inevitable uncertainty about future returns. Negotiating contributions from employers was seen as the second most important issue (41 per cent).

The survey also found that trustees are increasingly looking at alternative investments. Over a quarter (27 per cent) said they thought their investment portfolio will have diversified significantly away from traditional asset classes into alternative assets in the next five years.

Pension funds are under pressure to de-risk portfolios by investing a greater proportion of assets in the bond market and the results show that trustees are actively looking at alternatives to enhance overall returns, whilst reducing their correlation to equity markets.

In recent months pension schemes have suffered from volatile markets due to over exposure to equities. This has been extremely problematic for those with short term company reporting and those schemes looking to settle liabilities in the near future. However, some trustees are taking steps to remove exposure to such risk. 50 per cent said that they have taken action to remove risk from equity markets, whilst about a third have done the same in relation to risks from interest rates (31 per cent) and inflation (39 per cent).

Commenting on the survey results, Milan Makhecha, consultant and actuary, at Aon Consulting, said: ìThe survey shows that getting the right investment strategy in place is the most critical issues facing trustees.

ìThis aspect of trusteeís role is especially challenging in a rapidly diversifying investment market. Pension funds are under pressure to de-risk portfolios by investing a greater proportion of assets in the bond and alternative investment market. At the same time trustees are actively looking at other strategies to enhance returns while reducing their correlation to equity markets.

ìWe think that this will be reflected in greater enthusiasm for alternative assets such as private equity, hedge funds and others over the coming years. As trustees seek strong returns, the trend will accelerate if alternative asset managers continue to develop their businesses to reflect governance and other requirements of pension funds and institutional investors.î

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