A study of FTSE 100 defined benefit pension risk by Cardano and Lincoln Pensions.
When it comes to providing retirement income for millions of people, we believe it is essential to think about what could go wrong and take steps to minimise both the risk and impact of such events.
The Worry Index is our analysis of the overall health of FTSE 100 defined benefit pension schemes and their ability to meet their pensions promises to members. It’s our version of a stress test for pension schemes. For the first time, we have brought together information on funding, investment strategy and covenant, to provide in a single measure on the state of FTSE 100 DB pension schemes from an Integrated Risk Management (IRM) perspective.
The Worry Index warns companies and trustees that they must plan more effectively for the worst scenarios and implement tools to seek to avoid them.
If a company is in the worry zone it means that, during times of stress, a third of all profits would have to be directed towards plugging the pension gap and cannot be either reinvested in the company or paid out to shareholders. That is a significant financial commitment for a company and it means that if they can’t afford to pay it, they could either eventually go bust, or their employees lose their pensions. That’s potentially hundreds of thousands of people losing their retirement income.
Kerrin Rosenberg, CEO, Cardano UK.
The Worry Index combines in one single metric the three fundamental risks facing a defined benefit pension scheme – funding risk, investment risk and covenant risk.
For each FTSE 100 company, we calculated a Worry Score, which is the ratio of the size of the deficit to the value of the company in a stress scenario.
We have also analysed the value of the companies standing behind the pension scheme and how this changes in a stress scenario, by applying a set of consistent stress assumptions to both the schemes and their sponsors at the same time.
Boom Bust Boom is a documentary, described as a "fresh take on global economics". It is presented and co-written by Terry Jones of Monty Python fame, and co-producer, writer and Professor Theo Kocken. The documentary is a combination of light-hearted humour and serious commentary.Watch the trailer »
The IRM Made Simple Guide is co-written with the Pensions and Lifetime Savings Association (PLSA). It explains the concept of integrated risk management (IRM) and highlights effective implementation options to help trustees and sponsors achieve their objectives together.
COMING SOON – this will be launched by the PLSA at the conference, later this week.
A study of FTSE 100 defined benefit pension risk by Cardano and Lincoln Pensions. The Worry Index considers defined benefit (DB) pension scheme risk as part of an Integrated Risk Management (IRM) approach as advocated by the Pensions Regulator. It presents the most comprehensive view to date on the health of DB pension schemes within the FTSE 100. Please complete the form to access it.
The methodology explains how we carried out the analysis for the Worry Index study of FTSE 100 defined benefit pension schemes. This is available as a pdf, please complete the form to access it.