How should pension schemes be invested to improve chances of paying member benefits in full and on time?
This is the perennial question facing DB schemes as they mature and look to move into a position where they can pay benefits to members without being dependent on more contributions from the corporate sponsor.
This report looks at investment strategy choices pension funds have, by directly measuring their effect on the outcome a DB pension fund is aiming for. We do this by measuring the likelihood of meeting the benefits promised to members in full and on time, and then optimising the strategy to improve that outcome.
This paper provides a number of key insights, and two main conclusions.
1. In order to determine how likely it is to meet member promises there is merit in adding a new lens to track the probability of paying pensions due.
2. We then examined the impact of investing in contractual assets and have proven their value in improving the probability of paying pensions.
The position however varies depending on the funding level of your particular fund. We have looked at what funding levels benefit from pulling specific investment and risk management levers.