Pension Risks Sample Clauses

Pension Risks. The following are the risks associated with the pension plans: Asset Volatility The Plan’s liabilities are calculated using a discount rate set with reference to corporate bond yields; if a Plan’s assets underperform this yield, this will create a deficit. The Plans hold a significant proportion of equities and absolute return funds which are expected to outperform corporate bonds in the long-term while increasing volatility and risk in the short-term. As the Plans mature, the Trustees of the Plans are likely to reduce the level of investment risk by investing more in assets that better match the liabilities. The Trustees believe that due to the long-term nature of the Plans’ liabilities and the strength of the supporting Company, a level of continuing equity and absolute return fund investment is an appropriate element of the Trustees’ long term strategy to manage the Plan efficiently. Changes in Bond Yields A decrease in corporate bond yields will increase the Plans’ liabilities. A decrease in corporate bond yields will also increase the Plans’ assets to the extent that a Plan is invested in corporate bonds. At the valuation date, the Plans holds corporate bonds, although the level of investment in corporate bonds is relatively small. Inflation Risk Some of the pension obligations are linked to inflation, and higher inflation will lead to higher liabilities (although caps on the level of inflationary increases are in place to protect the Plan against extreme inflation). Life Expectancy The majority of the Plan’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the Plan’s liabilities. Investment Risk Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The assets of the Plan are invested in a wide range of asset classes including equities, bonds, property and absolute return bonds.