DB pension schemes avoid exposure to toxic assets

by Gill Montia

Story link: DB pension schemes avoid exposure to toxic assets

The Pensions Regulator has responded to recent extremely volatile stock markets by issuing a statement to the trustees of all work-based pension schemes.

The watchdog acknowledges that developments in the financial markets will be of great concern to trustees, employers and scheme members.

It therefore urges vigilance, and for trustees to focus on making sound decisions in the long-term interests of scheme members.

The body says its contact with some of the larger defined-benefit pension schemes suggest a relatively limited direct exposure to so called toxic assets, or derivative trades that involve counterparties that are failing.

Chairman, David Norgrove, expects a few individual pension schemes to have higher levels of exposure but does not believe the issue is systemic.

He sees the main problems faced by schemes as a general fall in asset values and emerging pressures on employer covenants.

However, the regulator warns that the international banking crisis and stock market falls will push more schemes into deficit.

Compared to previous downturns, it may take these schemes longer to recover.

At the same time, employers are likely to find it difficult to make good deficits with extra payments.