LONDON (Reuters) - Companies are neglecting to consider what would happen to their pension schemes in the event of a euro zone break-up, even as they put in place detailed contingency plans for their main operations, a survey showed on Thursday.
Towers Watson, a global consultancy that offers advice to institutional investors including pension funds on investment and risk management, said two-thirds of corporate treasurers it surveyed said plans were being put in place for how to cope with any euro zone break-up.
But only one in 10 of the treasurers were drawing up contingency plans for their pension schemes, many of which are larger than the companies themselves, Towers Watson said.
“Pension risk is much higher up the corporate agenda than it used to be but is not always managed as intensively as risks that affect the operational side of a business,” said Alasdair Macdonald, head of investment strategy at Towers Watson.
With the European Central Bank effectively declaring itself a debt buyer of last resort for troubled governments in the euro zone, expectations of the shared currency area splintering have eased.
But a euro zone break-up would raise a raft of legal and financial questions, and safeguarding assets would be a key concern for pension funds, which invest billions in stocks, bonds, property and hedge funds in order to pay for the future needs of their members.
Worst-case scenarios could include suspensions of stock and bond markets, fire sales of assets and controls on capital flows between institutions and countries.
Towers Watson said pension schemes needed to consider the implications of the euro zone fragmenting such as the impact on covenants of scheme sponsors and which assets might be subject to any capital controls, says Towers Watson.
Editing by Chris Vellacott