Cautious Approach for United Utilities on Longevity Risk
24 September 2012 (PLANSPONSOREurope.com) – United Utilities has investigated de-risking its final salary scheme against longevity risk but remain unconvinced, according to Steven Robson, head of pensions at United Utilities.
This is despite research from fiduciary management provider SEI revealing UK pension schemes see increasing longevity as the greatest risk to the funding level of their schemes.
But separate research from PwC shows only 22% of them have considered hedging longevity risk with the professional services giant anticipating plans lengthening recovery plans as they wrestle with growing scheme liabilities.
Robson told PLANSPONSOR Europe cost considerations around longevity risk solutions could explain why so few schemes are acting on their longevity risk concerns.
“Longevity risk is different to other risks in that longevity does not normally lead to a material one-off increase in deficit over a short period," he said.
“It is more likely to be a gradual and agreed increase in prudence and costs over a longer period. As such there is not the same urgency or burning platform around to tackle this in the same way as there is for other key risks such as inflation, interest rate or growth assets.
“Additionally it is only really being considered for pensioner liabilities at the moment which is not the area that the majority of pension schemes are most concerned about in risk terms.”
But Robson adds longevity risk remains a possible area of activity for United Utilities.
“We have looked at longevity risk and it remains a possible area of activity," he added.
"However, given there is a cost to remove the risk and it is a relatively new concept for pension schemes, it is not something that is likely to (or should) be entered into quickly.”