Running on into retirement?
Strategies for maintaining scheme health and unlocking surplus.
Maturing in age needn’t mean being in poor health. Nor does it rule out ambition. So how can DB schemes opting to ‘run on’ retain healthy funding levels, while also seeking to benefit from a growth mindset?
Our latest DB endgame paper focuses on ‘run-on’ and investing to both pay pensions and generate surplus in the endgame. As with strategy design in general, there is no one-size-fits-all solution. Schemes need to weigh up trade-offs when it comes to meeting their objectives. This paper is about understanding those trade-offs.
To do so, we believe it’s important that multiple potential investment and extraction policies are considered, so that schemes can select a strategy that best reflects their objectives, circumstances, and beliefs.
We illustrate the trade-offs between benefit security and surplus generation for two case studies. The first is focussed on long-term surplus generation, where we flex the investment strategy. The second considers more regular surplus extraction, where we flex the extraction criterion.
With high funding levels now common, our analytics demonstrate that in both cases we find it should often be possible, regulations permitting, to generate substantial surpluses while maintaining a high level of benefit security.
Together with a strong qualitative understanding of the factors at play, we believe the framework we outline in this paper can put schemes in good stead to tackle the challenges they face.
Read the full article: Running on into retirement?
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Mathew Webb
Head of Endgame Solutions
Mathew is Head of Endgame Solutions within LGIM's Solutions business and specialises in helping pension schemes achieve their endgame objectives, whether that is buyout (pension risk transfer to an insurer), run-on (investing like an insurer in a credit and LDI portfolio, together with a portfolio focused on surplus growth), or both (run-on for now with the option of buyout later). Mathew has over 25 years' experience in pensions, insurance and banking markets, having previously worked in pensions advisory, longevity risk transfer and structured products. Mathew is a qualified solicitor (non-practising), holds an MA in Natural Sciences from Downing College, Cambridge University and a Certificate in Quantitative Finance.
Victoria Myers
Head of Investment Advisory
Victoria has responsibility for the investment advisory services that LGIM delivers to clients as part of its fiduciary management and OCIO service. She is also directly responsible for the advice and discretionary management of a portfolio of clients. Victoria joined LGIM in August 2017 from Willis Towers Watson, where she was a senior investment consultant. She has significant experience having worked with defined benefit pension schemes in the UK of all sizes since 2006. Her advisory background spans the full range of investment advisory services from investment beliefs and objectives setting to implementation for clients ranging from sub-£10m to over £4bn. She also has experience of advising common investment funds and charities. Victoria is a CFA Charterholder, and holds a degree in Economics from the University of Bristol.
