A UK pension advisory firm has released research showing that the pension funds of FTSE 350 companies are carrying £100bn in investment risk, underwritten by their sponsors as they struggle to adapt to The Pensions Regulator’s (TPR) new holistic risk approach.
The approach, published in the DB Code of Funding last July, calls on schemes to account for the strength of the employer covenant when calculating investment-risk tolerance and thereby ensure risks between a company and its pension fund are balanced.
Lincoln Pensions also found that FTSE 350 schemes had an accounting deficit of £72bn, but this is combined with the £100bn of investment risk—with the average allocation to risk assets at 44%.
Matthew Harrison, managing director at Lincoln Pensions, said: “The share of return-seeking assets does not decrease as the schemes get larger in the context of their employer, despite clear guidelines in TPR’s code of practice on funding.
“Analysis may lead to scheme funding discussions that move away from the historical focus on funding today’s deficit towards a greater understanding of investment risk volatility and a balance in the scheme’s overall risk profile.”