Hymans Robertson reported that UK defined benefit schemes have over £1trn of unhedged interest rate exposure, even though the value of assets held in bonds have nearly tripled over the last ten years.

Human resource experts feel as though this really highlights the need for schemes to understand what their largest risks are and how to manoeuvre them strategically.  When the FTSE350 is considered, most companies have paid in £250bn to try and help funding holes since the onset of the millennium.  Risks need to be supreme in people’s minds, but this will never happen if companies continue to clean up the mess.

The £1trn of unhedged interest rate exposure is a prime example of why risk management needs to be considered for DB schemes. 

When the UK is analysed in conjunction with DB schemes, schemes are being paid out around £20bn more per annum than they receive in contributions across the whole private sector.

Cashflow negative schemes are becoming more and more of a reality and face a whole arsenal of risks that most people aren’t aware of.  “Market volatility is an inescapable reality.”  This kind of risk should be at the forefront of investors’ minds.