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Entity-wide risk management for pension funds

Published online by Cambridge University Press:  04 April 2012

M. H. D. Kemp  and
C. C. Patel
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Abstract

This paper explores the application of ERM-style techniques to pension funds. It uses the term ‘entity-wide risk management’ rather than ‘enterprise risk management’, even though both have the same acronym (‘ERM’), because many pension funds do not view themselves as business ‘enterprises’ as such. Some of the techniques that business enterprises have for managing risk (e.g. raising new capital from shareholders or branching into new business areas if existing ones have unattractive risk-reward characteristics) may not be open to many pension funds. The paper argues that the holistic approach to risk management (and governance) that is a hallmark of ERM is as appropriate to pension funds as it is to any other type of entity. This is the case whether the fund is defined benefit or defined contribution in nature, or a hybrid. It is also the case whether the ‘entity’ is deemed to be the fund itself, the sponsor or the two combined. Indeed, there are aspects of pension arrangements, such as the relationship between the fund and its sponsor, that lend added impetus to the use of ERM-style techniques in practical pension fund management.

Keywords

Enterprise Risk ManagementEntity-Wide Risk ManagementPension FundPension SchemeDefined BenefitDefined ContributionPension RiskSponsor CovenantSolvency IIOwn Risk and Solvency AssessmentWalker Review
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 17 , Issue 2 , July 2012 , pp. 331 - 394
Copyright
Copyright © Institute and Faculty of Actuaries 2012

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