Value in a New Pension Perspective. Derisk the Covenant: Revamp the Investment Strategy

Silos are a feature of the pension industry.  Sometimes wider perspectives are appropriate.  One such connection that could be made is between insurance backing for corporate pension obligations (to make a scheme financially self-standing) and the scheme’s investment strategy.  This is provided in exchange for less derisking.

A targeted return which reflects the strength of the covenant and does not try to shadow insurers’ asset allocation will add over 1% to returns.  The annual benefit will be far higher than the costs of providing the surety-esque back-up.

Corporates can acknowledge there is a new, tougher pensions regime with teeth and the expectation on all parties is higher.  Reputational risk and corporate governance both suggest decisive action is appropriate.  The scheme’s target is to make itself self-sufficient.
Derisking is a “good” which in excess becomes a problem.  A journey plan can be flawed if you can’t get home under your own steam.

When the concerns of trustees have been addressed, corporates can then expect to work to minimise the cash required from the sponsor.  They have a fall-back if the corporate itself falters.  It adds more time and helps all parties achieve better results.  There is value in a new pension perspective.  
​
The case was summarised in our recent webinar, which can be viewed at https://secure.kinura.com/c-suite/