The 2023/24 edition of Aon’s Global Pension Risk Survey – published every two years for over a decade – charts the actions, plans and concerns of UK DB pension schemes. The UK survey had a total of 204 responses, covering DB schemes of all different sizes, from the relatively small (less than £100 million) to the very large (over £10 billion). This year, 63 per cent of respondents were trustees, including professional trustees, while a quarter were pension managers, with most of the remainder representing scheme sponsors.

Prioritising risk
Since the last survey, risks faced by DB pension schemes have become more varied and more complex, highlighting a greater need for careful prioritisation of risk and opportunities . In a new question for the survey, respondents were asked to rank the seven risks that could threaten their scheme’s ability to pay member benefits as they fall due. The results revealed that, despite some differences between them, both trustees and sponsors ranked investment risk as the highest priority concern, with interest rates, inflation and longevity risk also featuring highly. However, it was noticeable that regulatory risk also featured in the top four risks for both trustees and sponsors, ahead of more traditionally considered risks for DB pension schemes such as liquidity and sponsor covenant.

Matthew Arends, partner and head of UK Retirement Policy at Aon, said: “The two years since we conducted the last survey have been tumultuous for UK DB schemes. Coming out of the COVID-19 pandemic, we have seen growth assets rising in value but also the impact of 2022’s mini-Budget on gilt yields. There has been persistent high inflation, a raft of new regulatory requirements, and notable cyber incidents that have affected some pension schemes. Anyone running a pension scheme continues to face challenges and uncertainty as they navigate new forms of volatility.

“With this context, it is unsurprising to see regulatory risk high on the agenda of both sponsors and trustees. The survey highlights both the burden of the volume of regulatory change already required of schemes and also the big pipeline of changes on the way.”

Matthew Arends continued: “The survey responses demonstrate that political uncertainty and the lack of policy consistency on pensions were already worrying factors for schemes – even before the announcement in July of the wide-reaching Mansion House pension reforms which came after the survey responses were gathered. While change brings opportunities, the comments of respondents emphasise the challenges that trustees and sponsors face in ensuring risks and opportunities are prioritised appropriately.”

Alastair McIntosh, partner at Aon, said: “Survey respondents were also given the opportunity to highlight other risks that had not been directly covered in the survey. Although there was a wide variety of responses, by far the biggest concern for schemes was regulatory burden and political uncertainty – gathering 44 per cent of the responses. Governance risk was cited by 22 percent of survey participants as a worry. Respondents’ freeform comments underscored their concern with the pace and extent of regulatory change.

“As we approach 2024 it will therefore be interesting to observe how schemes plan their activities – dealing with the measures with which they have to comply, but also carrying out the actions that they believe will be in the interests of the scheme and its members. Allocating time, budget and resource is not getting any easier.”

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