See It, Believe It

I met one of our new clients a few months ago who, somewhat unusually, has two very similar defined benefit pensions schemes in terms of size, funding level, and investment strategy.

Over the course of the quarter, one scheme’s funding position had moved noticeably differently to another, despite the apparent similarities and the fact that there were no noticeable differences in contributions or benefits payable.

‘What has gone on here then? It must be a mistake!’ he said.

What had actually happened was inflation expectations had moved over the quarter and that the two schemes, whilst similar in most respects, had very different exposures to inflation with one scheme having a lot more RPI related benefits whilst the other had more fixed pension increases. Whilst these are of course easy words to say – it was more exciting to show him visually the impact of changes to inflation assumptions on the two schemes’ funding levels and also the decomposition of the investment risks which the two schemes were running.

Using Pension Risk NavigatorTM, our new online actuarial funding and investment risk management system, I did precisely that and we debated how actually the schemes were quite different and that the same investment strategies may not actually be appropriate. That disparity is now being addressed as a matter of urgency.

‘We would have never been able to make decisions like this without access to this system’ my client said. As I drove home that day, I reflected that he was dead right!

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