EUROPE - The number of pension funds looking to modify scheme design has fallen across Europe, according to research by Aon Hewitt.

The survey also found that one in four respondents did not have a policy in place regarding interest rate or inflation risk hedging.

The consultancy said the results, taken from its 2011 Global Pension Risk survey, showed that the majority of schemes have already completed planned changes, while it estimated the remainder would seek to maintain benefit payments within the boundaries of the current regime.

Matt Wilmington, EMEA lead for global risk services, said pension funds across the continent had recovered from the emotional shock of the recent financial crisis, but not the economic impact.

“Our 2011 survey reveals a much greater focus on getting the right outcome over the right timeframe,” he said. “Employers have realised there is no magic wand they can wave to make their defined benefit fund go away.”

Torsten Köpke, head of Aon Hewitt Germany’s investment consulting, said pension funds were increasingly showing interest in matching assets to liabilities, while the consultancy’s German managing director Georg Thurnes said some were increasingly looking at cross-border applications of their pension scheme de-risking strategy.

Thurnes added: “For some time, such a step was seen as too complicated or too complex. But possibilities and opinions change, meaning that merely qualified advice is needed.”

Wilmington added that, instead of wishing away their pension funds, sponsors were setting out an “endgame”, allowing them to minimise risk - presumably as a defined benefit scheme approached the end of its life.

He added: “On mainland Europe, the ability to offer discretionary benefits is proving an effective safety valve, both for employers to manage costs and for employees who are seeing fewer of their valuable defined benefit plans cut back, closed or frozen.”

He explained that the discretionary nature of benefits meant regulators on the continent had been kinder to pension schemes than UK legislators.

Wilmington added that the continued focus on risk management would likely allow for defined benefit schemes to become less of a problem for sponsors in future.

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