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In the manager's 40th annual Pension Fund Indicator report, it also called for the debate surrounding the suitability of equity investments by pension funds to focus more on the appropriate pricing levels for equities. Calling for a focus on liability risk management rather than asset risk, the report said trustees should introduce a mortality buffer able to offset "unknown adverse future events".
"This margin, or buffer, would then be used to cover adverse changes in longevity", the report suggested, saying that "prudent assumptions" should be employed by trustees when setting out their deficit funding objectives to secure higher deficit payments from sponsors. It added that trustees could also aim for an additional investment return target, above the existing benchmark, with the funds earmarked specifically for any increase in longevity risk.
The report continued that the "middle ground" approach – between mortality buffer and full risk transfer to an insurance company through buyout – would be to ask an insurer to guarantee their pricing for a number of years, with the scheme's investment strategy adapted to return the premium needed.
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