Sponsored article
A well-designed CDI solution enables trustees and sponsors to adopt a thorough integrated approach across investment, funding and covenant. The investment strategy, along with the assessed strength of sponsor covenant, should determine the appropriate discount rate for liability valuations. Higher yielding assets, reflected in discount rates, would help ease the funding burden. Finally, there are implementation consid- erations. It is important for all parties to consider how they manage key pension and investment risks associated with the sponsor, assets and liabilities. For exam- ple, there could be unanticipated changes to sponsor solvency, interest rates and
Buyout
inflation expectations. Precise matching is not viable, especially when there is cash-flow uncertainty due to, inter alia, liability management exercises (such as transfer incentives to members or pen- sion increase exchanges) and buy-ins.
2020 and beyond Coupled with the backdrop of the dismal outlook for interest rates in the UK and the eurozone, strategies focused on generating income need to be a key feature for DB pension funds in 2020 and beyond. The result should be an increase in certainty of returns, reduced funding level volatility and cash-flow needs being met as DB pen- sion funds approach their endgame.
Self-sufficiency A 15% 10% 50% 30% 30% 5% 5% 10% 10% 10% 5% 5% 10% 40% 10% 5% 40% Self-sufficiency B 10%
Liability hedging assets Multi-Asset Credit
Cash Equity income
Buy-and-maintain bonds Emerging market debt
Asset-backed securities Private debt
Source: Janus Henderson Investors
Important Information
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