ERM for pension funds

ERM for Pension Funds – References and other material

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This paper explores the application of ERM-style techniques to occupational pension schemes (known as IORPs in the EU). Its abstract is set out below.

Presentations linked to this paper given to the Groupe Consultatif and to the Institute and Faculty of Actuaries are available here and here. A Japanese translation of the paper is available here. References contained in the paper are set out below.

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.

Author(s)	Title
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Bank of England (2009)	Recovery and Resolution Plans - Remarks by Andrew Bailey
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BAS (2009b)	Technical Actuarial Standard M: Modelling
BAS (2010)	Technical Actuarial Standard R: Reporting Actuarial Information
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EIU (2009)	Beyond box-ticking: A new era for risk governance
FSA (2009)	Discussion Paper 09/4: Turner Review Conference Discussion Paper. A regulatory response to the global banking crisis: systemically important banks and assessing the cumulative impact
FSA (2010)	Consultation Paper 10/03: Effective corporate governance (Significant influence controlled functions and the Walker review)
Groupe Consultatif (2010)	Security in occupational pensions
Hatchett, J., Bowie, D. and Forrester, N. (2010)	Risk management for DB pension funds
Hitchcox, A.N., Klumpes, P. J. M., McGaughey, K. W., Smith, A. D. and Taverner, N. H. (2010)	ERM for Insurance Companies - Adding the Investor’s Point of View
HM Treasury (2009)	A review of corporate governance in UK banks and other financial industry entities - Final Recommendations
IAA (2009)	Note on Enterprise Risk Management for Capital and Solvency Purposes in the Insurance Industry
IASB (2010)	Defined benefit plans: Proposed amendments to IAS 19, Exposure Draft/2010/3
ICAEW (2002)	No surprises: working for better risk reporting
ICAEW (2005a)	Risk management: Risk Management among SMEs
ICAEW (2005b)	Risk management: A guide for finance professionals
IFRS (2010)	Management Commentary: A framework for presentation
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Kemp, M.H.D. (2010a)	Liquidity Risk - Its Relevance to Actuaries
Kemp, M.H.D. (2011)	Entity-wide risk management for pension funds
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OECD/IOPS (2011)	Good practices for pension funds’ risk management systems
Orros, G.C. and Smith, J. (2010)	ERM for health insurance from an actuarial perspective
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