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Pension scheme risk reduction can be counterproductive

Pensions experts have warned employers there are pitfalls in seeking to reduce risk in their pension schemes.

With the ongoing economic uncertainty employers will be seeking to remove as much risk from their schemes as they can, but scheme sponsors and trustees could end up paying too much for risk reduction, missing opportunities in the market or failing to vet providers adequately, according to Mercer.

Andrew Ward, consultant in Mercer's financial strategy group, said: "While risk reduction makes sense for many pension schemes, it's essential for sponsors and trustees to be clear about what they are trying to achieve."

Ward advises scheme sponsors to consider the possibility of future investment gains.

He added: "Continued change in the market seems likely, with the potential for new departures and new entrants in the not-so-distant future. Pension scheme sponsors and trustees need to conduct thorough due diligence to satisfy themselves as best they can that any provider they rely on for future pension payments is both operationally and financially robust."