Pension professionals see longevity risk as the biggest threat they face, according to a State Street study.

The custody bank polled 400 individuals on levels of priority they assign to different risk types, and 26% said ‘very high’ in relation to longevity. 

This was followed by 25% who said this about investment risk; 22% about liquidity risk and 14% said this when asked about operational risk.

Longevity risk refers to the risk that actual survival rates and life expectancy exceed expectations or pricing assumptions, resulting in greater-than-anticipated retirement cash flow needs.

Just over a fifth said they felt the organisation they work for were ‘highly effective’ in managing issues around longevity.

“Delivering long-term successes in such a challenging environment means relocating investments to diverse asset classes that combine return potential and sustainable performance,” said Oliver Berger, ‎head of asset owner solutions & strategic market initiatives, sector solutions EMEA at State Street.

“In turn, this is driving leading pensions to invest in stronger governance frameworks that strike the right balance of autonomy for the investment team and oversight of risk.

“Our findings for example, reveal pension schemes are investing heavily to make improvements around the transparency and frequency of reporting and data, but acknowledge there is still more work to do.”

In terms of how effective pension professionals believe key aspects of their risk management framework are, 28%  describe the quality of insight from their external asset managers on risk as ‘very strong’, compared to just 8% who think it is below average/weak.

When looking at reliability and accuracy of risk data, the corresponding figures are 26% and 14%.

“Asset owners are well aware of the challenges they face and what needs to be done to address them," added Burger.

"Our research reveals they also have confidence in their in-house risk management teams to deliver on this, with 30% of pension professionals describing their colleagues’ capabilities here as ‘very strong’, and a further 55% describing them as ‘strong’".