After UK Chancellor George Osborne passed the budget couple of weeks back, it has created quite a stir in the financial community, especially for retired pensioners. Pension Minister Steve Webb, has announced that the government is trying to develop a model where-in the increased burden of pension on the employers is done away with and also to reduce the uncertainty of pension incomes to retired people.
Finally salary pension schemes are attractive to pensioners as they guarantee income linked to inflation. However as people are living longer and with increased inflation, and stagnant economy, companies see these schemes to have increased costs affecting their bottom line.
In an interview on the BBC Radio 4 Today program, Mr. Webb said: “Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face.”
“We are pretty clear that employers are going to be very nervous about anything that involves guarantees,” Malcolm Small of the Institute of Directors told the BBC.
Many firms have introduced defined benefit schemes where employees pay into their pension fund. However, those plans rely on performance of financial markets and hence it is difficult for workers to predict their incomes.
Steve Webb, has announced Defined Ambition plan to balance uncertainty of future income and increase cost of final salary pensions.
Given the scenario, my understanding is that more pension funds need to introduce intelligent software tools that can predict stable income given various uncertainties involved. Liability Driven Investment is one such concept where, the pension funds focus to balance liabilities with assets and try to generate constant predicted income as opposed to maximizing incomes over a period of time. Stable income is the name of the game and more pension funds that provide this balance stand to win in the long run.
LDI Opt is a software that we have developed at OptiRisk Systems, which involves high degree of Sochastic Optimisation and Risk Modeling under various uncertainties (such as systematic and unsystematic risks). We feel that our software will be a great tool for pension funds to balance the employer and employee needs and generate optimum income for retired pensioners. Please have a look at the presentation of tool below. Please contact us for any queries:
