Schroders
Top 10 tips for de-risking
De-risking goals for your defined benefit pension scheme
For professional investors only
»
What is the goal of your de-risking plan? A buy-out of
the liabilities? Or to achieve self-sufficiency*?
* this is where the scheme is run on a low risk basis with no additional contributions required
Start with the end in mind
»
Some risks are rewarded with higher expected returns
(e.g. equity risk) and some generally are not (e.g. liability
risks). Pension schemes should focus on reducing
unrewarded risks
Look to take ‘rewarded’ risks
»
There are a range of Liability Driven Investment (LDI)
strategies that can free up assets to invest in return
seeking strategies
Protecting against liability risk
doesn’t mean giving up growth
»
Only take risk when you need the reward. As funding
levels improve, downside protection is more of a
priority than chasing further rewards
Funding level comes first
»
Are your liabilities mainly fixed or inflation linked?
Does your scheme fund on a gilts or swaps basis?
Could you benefit from diversification or equity
protection in your growth assets? Which tools
in the toolbox are the trustees willing to use?
Use the right de-risking tools
»
Tackle larger risks (such as equity or interest rate risk)
before those with a less immediate impact
(e.g. longevity risk)
Prioritise
»
A de-risking strategy should enhance a pension
scheme’s governance structure and provide
a framework for effective decision making
Governance is key
»
The best de-risking plans are a coalition between the
corporate sponsor and the pension scheme trustees
Sponsor involvement
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This lets the pension scheme benefit from independent
oversight from their consultant and timely monitoring/
market expertise from their fund manager
Focus on partnership
»
Cost-effective de-risking solutions are increasingly
available to smaller pension schemes. These allow
all schemes to access a range of tools previously
used only by larger schemes
Don’t assume
you are too small
Contact us
If you feel a Flight Path strategy could help your scheme meet its investment objectives, please contact:
Claire Glennon
UK Institutional Business Development
Tel: +44 (0) 20 7658 4366
Email: claire.glennon@schroders.com
Rosalind Mann
UK Strategic Solutions
Tel: +44 (0) 20 7658 4782
Email: rosalind.mann@schroders.com
James Nunn
UK Institutional Business Development
Tel: +44 (0) 20 7658 2776
Email: james.nunn@schroders.com
Jonathan Smith
UK Strategic Solutions
Tel: +44 (0) 20 7658 6877
Email: jonathan.smith@schroders.com
Schroder Investment Management Limited
31 Gresham Street, London EC2V 7QA, United Kingdom
+44 (0) 20 7658 6000 flightpath@schroders.com
schroders.com/flightpaths
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Important information: This booklet is intended to be for information purposes only and it is not intended as promotional material in any respect.
The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide,
and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable
but Schroder Investment Management Limited does not warrant its completeness or accuracy. Reliance should not be placed on the views and
information in the document when taking individual investment and/or strategic decisions.
www.schroders.com/flightpaths
Contact our dedicated DC team to discuss the ways in which we may be able to add significant value
for your DC scheme and its members.
Issued in April 2015 by Schroder Investment Management Limited
31 Gresham Street, London, EC2V 7QA. Registered no. 1893220 England
Authorised and regulated by the Financial Conduct Authority. w46901