‘Dynamic De-risking’ Is Really ‘Delayed De-risking’, Says KPMG

Steven Bobson, Europe & Americas Editor
March 15, 2012 /

The popular approach to pensions risk management of making a commitment to de-risk schemes in the future or when economic conditions improve, rather than taking action today, does not represent an effective way for schemes to manage risk, according to the Investment Advisory team at KPMG in the UK.

Jon Exley, Investment Advisory partner at KPMG in the UK, said: “Developing theoretical and administratively complicated strategies on how to de-risk at some time in the future when conditions improve is rather like spending your time planning how to spend lottery winnings. So called ‘dynamic de-risking’ where trustees agree to future changes in investment strategy depending on certain triggers being met is, unfortunately, all too often a misnomer as delaying action until the good times is hardly dynamic and it doesn’t really reduce risk.”

In a briefing paper for pension trustees, “Is delayed de-risking the right strategy? Seven things you should know,” KPMG’s Investment Advisory team run through the most important issues for pension scheme trustees to consider when looking at managing risk in their investment strategy, explaining that the danger of a “wait and see” approach is that conditions never improve so no de-risking ever takes place and emphasising the importance of considering the full range of de-risking options available, including more decisive action today.

Jon Exley concluded: “Everyone hopes that the economic situation will improve but ‘hoping for the best’ should not form the basis of a de-risking strategy, especially where there are almost always significant opportunities to reduce scheme risks by taking action sooner rather than later.”


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