Aon Hewitt research: 10% of pension schemes have funding-level triggers

One in ten pension schemes has funding-level triggers in place, according to research by Aon Hewitt.

The survey, which covered schemes ranging in size from under £10 million to over £5 billion, found that the majority of funding-level triggers have been put in place within the last two or three years.

Aon Hewitt attributed the growth in use of funding-level triggers to a number of factors, including that there are now more tools and services available in the market to make funding-level triggers more effective and these, combined with the general desire to avoid missing opportunities and also to de-risk, have fired the increase in their usage.

The survey also found that triggers fell into two broad categories in terms of how they are implemented:

  1. A number of schemes operate the fast-moving automatic triggers, which tend to involve monitoring funding position on a daily or weekly basis, some approximation of the funding position to allow this to happen, often some delegation to ensure that the monitoring takes place, and then an automatic asset switch when a trigger is hit.
  2. The other type is the slower but more considered trigger, which typically looks at the funding position on a monthly or quarterly basis. These, if there is an indication that a trigger has been hit, act as prompt for discussion by the trustees after they have considered advice. Asset switches are then made only after due consideration and approval.

Paul McGlone, principal and actuary at Aon Hewitt, said: “Funding-level triggers are typically designed to reduce a pension scheme’s allocation to return-seeking assets as the funding position improves and as the scheme no longer needs to seek as much return.

“We expect the prevalence of funding-level triggers to continue to increase and for them to become regarded as a standard practice for pension schemes.

“We also expect that the availability of products and services to support schemes in this area will increase, making them more widespread across schemes of all sizes.”

Read more articles on de-risking and funding-level triggers