Defined Benefit Pensions Risk Management

The best recent papers on pension risk management

Risk analysis and assessment is a vital component of defined benefit pension scheme management.  Aligning a scheme's priorities to coincide with the tenets of a particular glide path can be a difficult task when trustees are confronted with market volatility and a host of investment-related decisions.  Some pensions choose to de-risk via annuities, and some pensions regulators are considering the merits (or the potential disadvantages) of pooling risk via the establishment of pension superfunds. 

The following list of papers represents some of the best recent content on Savvy Investor on the topic of risk management practices for defined benefit pensions. 

Managing Risk in Turbulent Times (LGIM, Apr 2019)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Solutions strategy managers at LGIM elucidate some of the steps that defined benefit pension schemes can take when navigating volatile markets.

An Introduction to Liability Driven Investment (Insight Investment, 2018)

What are the principles behind liability driven investment strategies? This primer on LDI describes how these strategies can be employed to develop a glide path that enables pension scheme assets to cover future liabilities.

Constructing a Glide Path for Defined Benefit Plans (Rocaton, 2018)

What is a glide path? Rocaton explains the concept of the glide path for the benefit of plan sponsors that are considering adopting and implementing one.

The Hidden Risks of Pension Superfunds (Moody's, 2019)

This Moody's paper delves into the risk-related aspects of superfunds and how superfunds differ from the other presently available risk-reduction avenues for pension trustees.

CPI liabilities: the wedge and the hedge (LGIM, 2019)

For compliance reasons, this paper is NOT accessible in the United States and Canada

When pension schemes are benchmarking risk and hedging liabilities, it becomes important to understand that assets and liabilities can be linked to different inflation measures.

Pension Risk Management: Three Questions Plan Sponsors Should Ask (Capital Group, Aug 2018)

For compliance reasons, this paper is only accessible in certain geographies

Plan sponsors should consider pension risk asymmetry, the level of interest rate risk that is hedged and unhedged, and whether they are being appropriately compensated for the risks they have undertaken.

Cashflow Driven Investing (DWS AM, 2018)

For compliance reasons, this paper is only accessible in the United Kingdom

DWS Asset Management looks at the private infrastructure debt market, including a categorization of infrastructure debt assets, in order to describe the potential benefits of this asset class for cashflow driven investors.

A Primer for Investment Trustees: Understanding Investment Committee Responsibilities(CFA Institute Research Foundation)

Trustees take on many responsibilities, including setting investment and governance policy, understanding the fund’s mission, establishing objectives, and assessing performance. This primer discusses issues relevant to investment trustees.

The Purple Book: UK DB Pensions Universe Risk Profile (PPF, 2018)

For compliance reasons, this paper is only accessible in the United Kingdom

This is the 13th edition of the Pension Protection Fund's Purple Book. The document provides the most comprehensive data on the UK universe of Defined Benefit (DB) pension schemes in the private sector. This year, the dataset covers 5,450 schemes – 98.7 per cent of the estimated universe of schemes eligible for PPF compensation.

UK DB Consolidation: One year on (Hymans Robertson, 2019)

For compliance reasons, this paper is only accessible in the United Kingdom

Hymans Robertson provides an update on various aspects of the process of consolidation for UK DB pension schemes. A range of consolidation options exist, including insurers, commercial consolidators, ISS, and DB Master Trusts - all of which are covered in depth.

FTSE 350 DB Pension Scheme Survey 2018 (Willis Towers Watson)

Willis Towers Watson examines the impact of DB pension schemes on company accounts and how companies are managing their pensions risk.

Navigating climate scenario analysis: A guide for institutional investors (IIGCC, 2018)

Climate change presents a potential systemic risk to the financial system. This 60-page guide by the Institutional Investors Group on Climate Change aims to serve as a ‘how-to guide’ for institutional investors who are beginning to construct and conduct scenario analysis.

Identifying Retirement Plan Risk: An Important First Step to Managing It (Segal Consulting, 2017)

This article by Segal Consulting is devoted to identifying risk in retirement plans. It looks at risks associated with both DB and DC plans.

Forecasting Investment Returns and Expected Return Assumptions for Pension Actuaries (2019)

This 38-page report has been produced by the American Academy of Actuaries Pension Practice Council. It explains how pension actuaries select or recommend an expected investment return assumption or assess capital market models from an outside party, and may also facilitate discussion with investment professionals to better understand the basis for their assumptions.

Balancing Act: Managing Risk across Multiple Time Horizons (FCLT, 2018)

This FCLT paper addresses the challenge of managing multiple-horizon portfolios by outlining why such management is important, considering the barriers and hurdles, and then proposing a range of tools that funds could use, as appropriate to their situation.

Annual Risk Transfer report (Hymans Robertson, 2018)

For compliance reasons, this paper is only accessible in the United Kingdom

This is Hyman Roberton's annual overview and analysis of the risk transfer market. 2018 marks a significant new era for the pension scheme risk transfer market, with bulk annuity transaction volumes set to exceed £20 billion, a 50% increase compared to the previous record of £13.2 billion set in 2014.

How to successfully de-risk and transfer pension obligations (MassMutual, 2018)

This paper provides insights from an institutional risk manager into how to successfully de-risk and transfer pension obligations.

Trends in the Chinese Annuity Market and the Management of Longevity Risk (SOA, 2018)

This Society of Actuaries report discusses Chinese demographics, the three tiers of pension systems in China, and the development of the Chinese annuity market.