Live long and prosper (not)

A global survey of 400 pension professionals, commissioned by State Street, shows they see longevity risk as the biggest threat they face. 

When asked what level of priority they assign to different risk types, 26% said ‘very high’ in relation to longevity.  This was followed by 25% who said this about investment risk; 22% about liquidity risk and 14% said this when asked about operational risk.

When it comes to addressing these risks, the research, entitled Pensions with Purpose: Meeting the Retirement Challenge, finds that less than a quarter (22%) said they felt the organisation they work for were ‘highly effective’ in managing issues around longevity. The corresponding figures for managing risk around liquidity, investment and operations were 15%, 14% and 20%, respectively.   

“Delivering long-term successes in such a challenging environment means relocating investments to diverse asset classes that combine return potential and sustainable performance,” said Oliver Berger, ‎head of Asset Owner Solutions & Strategic Market Initiatives, Sector Solutions EMEA at State Street. “In turn, this is driving leading pensions to invest in stronger governance frameworks that strike the right balance of autonomy for the investment team and oversight of risk. Our findings for example, reveal pension schemes are investing heavily to make improvements around the transparency and frequency of reporting and data, but acknowledge there is still more work to do.”

In terms of how effective pension professionals believe key aspects of their risk management framework are, 28% describe the quality of insight from their external asset managers on risk as ‘very strong’, compared to just 8% who think it is below average/weak. When looking at reliability and accuracy of risk data, the corresponding figures are 26% and 14%.

When considering the quality of insight from consultants on risk, 27% say this is ‘very strong’, and just 9% believe it is below average/poor.  The corresponding figures for the ability to integrate risk and performance data across a portfolio, and the sophistication of risk models and analytics, are 24% and 9%, and 25% and 11% respectively.

 “Asset owners are well aware of the challenges they face and what needs to be done to address them.  Our research reveals they also have confidence in their in-house risk management teams to deliver on this, with 30% of pension professionals describing their colleagues’ capabilities here as ‘very strong’, and a further 55% describing them as ‘strong’”, continued Berger.