The Pension Protection Fund (PPF) is to improve its pensions modelling and risk management by licensing the Economic Scenario Generator (ESG), a financial modelling software developed by financial risk consultancy, Barrie & Hibbert. The PPF will use scenarios produced by the ESG within their Long Term Risk Model. This is used by the PPF to model both the future financial claims on the Fund, and to aid the management of the Fund by illustrating how its financial position might develop in future.
The ESG is increasingly used by major international financial services organisations serving the insurance, investment, pensions and savings sectors. Innovative modelling and consulting services of this kind are particularly in demand among pensions professionals, whether consultants or scheme sponsors, as the appetite for rigorous market risk measurement tools and management advice has developed. The ESG is already used by around two thirds of major UK insurers as part of their regulatory capital calculations.
“Defined Benefit pensions are undergoing a period of significant change, and schemes’ arrangements for dealing with risk and liability are under closer scrutiny than at any time in their history,” says PPF Chief Executive Partha Dasgupta.
“It is vital that the PPF stays on top of these changes, and Barrie and Hibbert’s ESG will play a core role in enabling us to do this. It is sophisticated enough to deal with the complexity of the current pensions regime, and flexible enough to reflect the shifting pensions landscape. I am confident it will prove to be an invaluable tool, to the PPF.”
Barrie & Hibbert Chief Executive, Andrew Barrie, also focused on the changes in the pension market. “The questions now being asked in the DB pensions market are very different from those of a few years ago,” he said. “In particular, there is more focus on the size and nature of the risks created and how they impact different stakeholders. The tools needed to answer these questions need to be appropriately sophisticated.
“In these aspects, the UK pensions industry is currently 5-10 years behind the UK insurance industry. We believe our ESG model will now help pension funds, their advisers and sponsors reach more measured and robust decisions for optimal management.”
“The Pension Protection Fund will play a central role in the future of UK pension provision, and we are delighted that, following a rigorous procurement process, it has embraced the Barrie & Hibbert ESG as a key aid in meeting this challenge. I am confident that others in the DB pensions field will also recognise the benefits to be gained from using such a market leading modelling tool.”