Robin Marshall, M.A., M.Phil
Director, Global Investment Research
Key takeaways:
- The new regime of higher bond yields has transformed pension funding for defined benefit schemes, driving the first surpluses since before the Global Financial Crisis (GFC) for many schemes
- The choice of discount rate and curves for pension schemes is critical, both for accounting and regulatory purposes
- The expanded FTSE Pension Liability Index Series covers a variety of rating buckets and credit sectors to better reflect pension liability-driven investments
Points of differentiation:
- The paper shows how a higher bond yield regime has driven the improved funding position of G7 defined benefit (DB) pension schemes…
- …and how a more flexible approach from some regulators is allowing DB schemes to diversify asset holdings, and driving more substantial liability-driven investment (LDI) flows
- It also explains why different metrics and discount rates for pension liabilities are appropriate for different purposes
What does our research mean for investors?
- Investors are informed of the forces driving the transformation in DB pension funding in the G7, and why the choice of discount rate and curve are so important
- By displaying both US and UK data, it is possible to show how far the issue affects different DB schemes, across the G7…
- …and why the collateral effect may be to drive more LDI flows into government bonds
