Quantum Advisory, the leading pensions, benefits and actuarial consulting firm, has stressed that greater consideration must be given to long as well as short term objectives when investing to secure the lasting health of schemes.
Rhidian Williams, Partner at Quantum Advisory, said: “We are currently in a low interest rate environment which has challenged pension scheme funding, and in fact in September 2016 we hit an all-time historic low in gilt yields. As these low interest rates have continued to push up scheme deficits, it is no surprise that many trustees are feeling the pressure to meet their liabilities. With more and more people in Defined Benefit (DB) schemes about to reach retirement age, benefit outgoings are on the rise and schemes need to be certain that their investment strategy is still fit for purpose.
“However, it is not all quite as bleak as it may first appear. Schemes should look at where and how they are invested to generate reasonable long term growth to meet their future liabilities. Many will still simply ‘default’ to Bonds as it will match the liabilities, but this could well result in locking in today’s problems. Re-risking, or at least looking to spend your risk budget more wisely, is an alternative view that schemes should be considering to create sustained growth.”
Williams continued: “There are a significant number of growth opportunities in many different asset classes. For example in diversified or absolute return funds – they are more managed and have lower risk volatility. Another example is Infrastructure funds that are also often known to good cashflow returns. Smart use of Liability Driven Investment can help to free up assets to invest in balanced growth opportunities in conjunction with meeting your liabilities. It’s all about finding ways to spend your investment risk budget more wisely.”