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Pension Fund Risk

The document outlines the various risks facing defined benefit pension schemes, with the overall risk being that scheme assets do not meet liabilities. It identifies liability risks such as inflation, interest rates, and longevity. It also identifies asset risks including strategic, tactical, operational, and market risks. Funding risks include the potential failure to meet minimum funding standards or volatility in the funding position.

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47 views2 pages

Pension Fund Risk

The document outlines the various risks facing defined benefit pension schemes, with the overall risk being that scheme assets do not meet liabilities. It identifies liability risks such as inflation, interest rates, and longevity. It also identifies asset risks including strategic, tactical, operational, and market risks. Funding risks include the potential failure to meet minimum funding standards or volatility in the funding position.

Uploaded by

SOPHIA-V
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Matrix of Pension Fund Risks

IAPF Investment Committee


2015
Matrix of Pension Fund Risks
Defined benefit (‘DB’) pension schemes are exposed to a number of risks (as set out graphically above)
with the overall risk being that assets do not meet liabilities. A description of some of the main risks facing
schemes is set out below.

Overall Risk: Assets do not meet Liabilities

Liability Risks Funding Asset Risks


- Failure to meet
MFS
- Actuarial on-going
deficit.
- Volatility of Funding
Position

External Internal Internal External

--Inflation --Salary inflation


--Interest rate --Promotional patterns
--Longevity --Retirement trends
--State Pension --Pension Increases
--Regulatory changes

Strategic Poor Governance Implementation Sponsor


- Inappropriate target - Integrity and Ethical --Covenant
return Values --Financial position
- Strategic Asset - Competence --Communication
Allocation - Assignment
- Additional Asset Types of Authority/
- Benchmark Misfit Responsibility
- De-risking strategy - Contact among
various parties

Tactical Operational Markets Inherent Risk

--Portfolio drift --Investment managers --Returns --Capital


--Poor tactical decisions --Custodian --Volatility --Credit
--Inappropriate managers --Internal Processes --Correlation of assets --Inflation
--Manager performance --Interest Rate
--Liquidity
--Tax/Legal
--Country/ Sector
--Currency
--Reputational

IAPF Investment Committee

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