The increased cost of meeting liabilities will be a challenge for both Defined Benefit (DB) and Defined Contribution (DC) pension schemes in 2016, according to BlackRock.
Since the Pension Protection Fund (PPF) was set up a decade ago, the company says, funding ratios have decreased with asset growth outpaced by the growth of liabilities.
Head of UK institutional at BlackRock, Arno Kitts, said the cost of meeting liabilities has increased, causing a greater focus on risk management.
He said: "People are living longer and although this is positive, it presents an ongoing challenge for schemes."
In addition, pension freedoms have brought more choice for people at retirement, which means they must consider how much they need to save to generate their desired income.
BlackRock says its Investor Pulse survey found the majority of British people underestimate their life expectancy and 44% are concerned they will outlive their savings.
The company says that schemes need to have the right systems and tools in place to help them understand the relationship between their assets and liabilities.
One solution could be diversification into alternative assets, such as private market income, infrastructure debt or renewable energy.
"These can provide an illiquidity premium of between one and three per cent, which is not insignificant in today's low return environment," Kitts said.
"These additional returns reward a long-term approach where pension funds have an advantage over other investors and could benefit in the year ahead."
Enabling people to gain a greater understanding of liabilities is another.
BlackRock launched an online retirement calculator, CoRI, in 2015 enabling those in their pre-retirement years to calculate how much they need to save in order to generate a specific annual retirement income.
Tony Stenning, head of UK retail at BlackRock, said: "A DC plan is in essence a DB plan, but for an individual.
"The challenge facing individuals and pension trustees is the same – the ability to meet liabilities over the long term."
First published 08.01.2016
Lindsay.sharman@wilmingtonplc.com
