Defined benefit (DB) pension schemes' trustees and sponsors view inflation risk with greater importance than in 2010.
Persistent higher than expected inflation and uncertainty regarding the switch from the retail prices index (RPI) to the consumer prices index (CPI) for indexation of benefits were the predominant causes for the change in sentiment.
Overall, inflation was ranked as the 6th most important risk out of 18 in the 2011 UK Pension Risk Behaviour Index (PRBI), compiled by Metlife Assurance. This represented a major shift for trustees in particular, who ranked it 14th in 2010.
But management of this risk is not rated so highly, with trustees ranking it as the 12th most successfully managed risk, and sponsors ranking it 14th.
Emma Watkins, director of business development at Metlife Assurance, said: “Trustees and sponsors are rightly concerned about the risk of inflation. Whilst we welcome the Government’s statements that a CPI underpin will not be required as it would have increased complexity and cost, it will not be until legislation is enacted that the uncertainty faced by trustees and sponsors over the past year will be removed.”
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