Solutions Outlook 2022

In our 2022 Solutions Outlook, members of the team share their insights on what we believe to be some of the key themes for the year ahead. From CDI and credit markets to inflation, green gilts and equity protection strategies, we discuss some of the most important topics for DB pension schemes this year.

If we had to pick one chart which influences every topic in this report, it would be Figure 1, which shows the evolution of pension scheme funding levels over the last few years.

2021 was an incredible year for funding levels: LGIM’s Funding Level Tracker showed a gain of 84% to 93% from the start of the year to 30 September 2021, consistent with industry data from the Pension Protection Fund ('PPF'). This has caused a step change in the demand for cashflow-driven investing ('CDI') strategies, as schemes look to de-risk further by ensuring they hold sufficient contractual cashflow generating assets to pay their liabilities. We delve deeper into all things CDI on page 6.

However, de-risking is not risk-free and covenant risk has been a significant issue since the COVID-19 outbreak. Our research suggests that many schemes could increase the expected proportion of benefits met by making small changes to asset allocation.