Pensions Conference 2011. Review of Plenary 3: Enterprise risk management in action

The future of pensions management

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The speakers described how their organisations, large complex financial institutions, applied enterprise risk management (ERM) techniques to manage their pension schemes.

ERM is similar to the actuarial approach because it is somewhat myopic and entity centric. It is very different from the actuarial approach in that the decision-making process starts with identifying risks being taken and risks that could be taken, rather than acknowledging them as an afterthought.  As the Chair of the discussion Jim Boyle noted, actuaries do not have to move very far from current best practice to apply ERM to pension schemes. 

The speakers discussed the risk management frameworks in each of their organisations, highlighting the prominent role of risk appetite and management in setting strategy, as well as governance to achieve entity objectives.  Throughout there was an emphasis on the need for an integrated approach: across countries; schemes; funding, investments, benefits and covenant.

Alan compared and contrasted pensions risk management with HSBC’s market risk management.  Analysis that is timely, transparent, straightforward and easy to understand – and most of all risk focussed – has been implemented, and is being developed over time.  But the talks portrayed risk management as much more than just analysis, and described the importance of culture, ownership and leadership in tackling risks. 

It was encouraging and stimulating to hear how two leading organisations are embracing the tools of ERM to improve the way pensions risks are managed.  There was real practical insight from people who are grappling with the challenges of risk management in the real world.  This highlighted the challenges and opportunities for pension actuaries to take our craft forwards in the 21st century.

As Catherine concluded, risk management is art, not just science. Perhaps that’s something we can all reflect on given the current regulatory framework, and the seemingly ever-increasing complexity of pensions risk measurement.