Pension risk the less capability to take the corporate risk: JP Morgan, London

Abstract

A pension is a steady income given to a person (usually after retirement). Pensions are typically payments made in the form of a guaranteed annuity to a retired or disabled employee. Some retirement plan (or superannuation) designs accumulate a cash balance (through a variety of mechanisms) that a retiree can draw upon at retirement, rather than promising annuity payments. These are often also called pensions. In either case, a pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions 1 I did not have an assigned project to work on rather was helping the team on a day to day basis and working on the deals that were taking place at that point in time. It was more like working as a full time employee and contributing to the team and helping them out. Since there was no fixed project the report here discusses some of the important learning from the both technical and otherwise. Pensions is becoming an important problem to deal in the Europe because of the shear size it has attained over the years. With the risk taking capability of any business limited to a predetermined value the more risk you take on the pension side the less you can take on the corporate side. By risk on the pension side we mean the difference in sensitivity of the assets and liabilities of the pension funds to certain macroeconomic parameters like inflation, interest rate, longevity etc. If for a change in interest rate the change in assets and the change in liabilities is not close enough we say that there exists pension risk. Why should the corporate not take too much pension risk?