It reveals that just one in five schemes have a high chance of being able to deliver on agreements in full, while the same amount have a 66% chance of failing.

In addition, it was found that the typical scheme has already extended recovery plans beyond the average period of eight years, suffering a significantly higher risk of failure as a result.

“Since the introduction of the Pension Protection Fund in 2005, more than 10% of DB schemes have failed to deliver their promised benefits in full and around 1% of schemes fail each year,” PSTS principal, Richard Jones, said.
“Over the long-term, our projections suggest that around one third of UK schemes will fail to deliver members’ benefits in full.”

The research considers pension schemes from an integrated risk management perspective, testing covenant strength against changes to funding and investment/management strategies, using software and modeling tools.

It was found that shorter recovery plans, including paying off deficits by lump sums, have a limited impact on safeguarding benefits, as they are just a small acceleration of monies the scheme would expect to receive any way.

The findings show that investment risk within a pension is borne almost entirely by the sponsoring employer, and that increasing the level of technical provisions held by a scheme, while reducing risks to benefits, can result in a very high price.

Read complete content here: The Actuary