Regulatory risk is the most pressing concern facing defined benefit (DB) schemes in the United Kingdom, according to research from Aon.

The analysis showed that regulatory change is the viewed is causing the most unease for DB trustees and sponsors.

Nearly half (44 per cent) of those questioned identified regulation as their biggest worry, while 22 per cent governance as their most troublesome area. 11 per cent said ease of buying out was their top concern, while 8 per cent said investment-related matters and ESG progress were their most problematic topics.

In its latest Global Pension Risk Survey, the consultancy also found that regulatory change is viewed as a major threat to scheme's ability to pay out member benefits.

Both trustees and sponsors ranked investment risk as the biggest danger to member benefits.

Trustees told Aon that interest rate and inflation risk were the second biggest threats, with longevity risk the third, and regulatory risk the fourth most immediate peril. Sponsors consider longevity risk the second biggest threat and regulatory risk the third.

Aon partner and head of UK retirement policy at Aon, Matthew Arends, said that the survey was conducted before the announcement of the wide-reaching Mansion House pension reforms of July 2023, showing that regulation has been a leading worrying factor for some time now among DB schemes.

“The two years since we conducted the last survey have been tumultuous for UK DB schemes," he continued.

"Coming out of the Covid-19 pandemic, we have seen growth assets rising in value but also the impact of 2022’s mini-Budget on gilt yields.

"There has been persistent high inflation, a raft of new regulatory requirements, and notable cyber incidents that have affected some pension schemes. Anyone running a pension scheme continues to face challenges and uncertainty as they navigate new forms of volatility.

“With this context, it is unsurprising to see regulatory risk high on the agenda of both sponsors and trustees. The survey highlights both the burden of the volume of regulatory change already required of schemes and also the big pipeline of changes on the way.”

Aon partner Alastair McIntosh, added: “As we approach 2024 it will therefore be interesting to observe how schemes plan their activities – dealing with the measures with which they have to comply, but also carrying out the actions that they believe will be in the interests of the scheme and its members. Allocating time, budget and resource is not getting any easier.”

The 2023/24 edition of Aon’s Global Pension Risk Survey features a total of 204 responses, covering DB schemes of all different sizes, from sub-£100 million funds to those larger than £10bn.

Nearly two thirds (63 per cent) of respondents were trustees, including professional trustees, while a quarter were pension managers, with most of the remainder representing scheme sponsors.

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