As part of overall risk management frameworks, pension schemes are increasingly looking to understand and manage climate-related risks across their investments, funding strategies, and sponsor relationships.

Regulatory drivers and the transition to a lower carbon economy is accelerating the pace of change and schemes are also under more and more scrutiny from members, the media and regulators.

Looking wider than just physical effects such as heat-related and cold-related deaths, different scenarios for the future of climate change can show material effects on UK life expectancies. Consequently, climate change can be a key longevity risk affecting schemes’ funding strategies and benefit security. Depending on how the future pans out, “transition risks” like the economic effects of government policy decisions and technological change, as well as “physical risks” such as the effects on long-term lifestyles could affect different generations in different ways. Pension scheme liabilities can span a range of generations, and climate change scenarios could have very different impacts from scheme to scheme, as well as differences between different sections of the same scheme. Life expectancies can of course have material implications for members of defined contribution schemes too.

This webinar sets out the approach that we’re taking with our clients, where integrating longevity modelling with other key pillars such as investment and covenant allows the whole story to be told. We outlined how innovative analysis translates climate change scenarios defined by the UN to models that we can tailor to the profile of any UK pension scheme.

Being on the front foot with the innovative research on climate change will allow for more robust funding strategies, better-informed public perceptions, risk management, and regulatory compliance as well as better member outcomes. The material link between climate change and UK life expectancies is critical to the holistic picture.

Longevity risk is becoming the largest unhedged risk for many defined pension schemes. But have you considered the affect climate change could have on it, and what that would mean for your scheme, its members and sponsoring employer?
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