Defined Benefit solutions

A sharper focus on the endgame

As DB pension schemes mature and funding levels improve, there is a sharper focus on investing for the endgame, be that an insurance company buyout, self-sufficiency, or transfer to some form of consolidation vehicle.

Meeting the evolving requirements of your investment strategy

As schemes mature and funding levels improve, many trustees are changing the focus of their investment strategy. During the accumulation phase, a typical scheme would focus on growth assets to close funding deficits alongside a liability driven investment (LDI) solution to hedge interest rate and inflation risk. As schemes mature and navigate towards their ultimate endgame, the focus is increasingly shifting to income and cashflow matching.

A different skillset is required for the endgame

A very specific skillset is required to build and implement appropriate investment portfolios to help pension schemes navigate towards their endgame. We offer expertise across fixed income, alternative sources of contractual income and liability driven investment. Our insurance heritage, extensive investment capabilities, and ESG approach makes us uniquely placed to work in partnership with pension schemes to help them achieve their goals.

Initial solution design

We currently offer a free solution design service to help clients and their consultants build robust investment solutions to meet their objectives. This can involve detailed solution design covering growth, income and hedging objectives, and can utilise abrdn pooled funds (including our Liability Aware fund range) and / or more bespoke segregated solutions.

Ongoing solution management

The COVID-19 crisis and market volatility following the UK’s Mini-Budget in September 2022 highlighted to many trustees and sponsors the burden of independently running DB pension schemes, particularly monitoring and managing investment strategies during volatile market conditions.

At abrdn, our dedicated pension solutions team can provide holistic ongoing management of a pension scheme’s investment solution. We can respond to our clients’ particular circumstances; providing support and advice around the key decisions that will remain with trustees; and also a clear and accountable process for the implementation that we have responsibility for.

Outsourced Chief Investment Officer (OCIO)

abrdn's Fiduciary Management offering formalises our delivery of investment advice to UK DB pensions schemes, building on our long-history of partnering with clients to design bespoke solutions to meet their specific challenges. As an appointed Fiduciary Manager, we can work with clients to develop strategic investment plans specific to their needs and execute using our extensive asset management capabilities.

abrdn has been working with and managing assets for UK DB pension schemes for over 25 years, with over 350 UK DB pension schemes invested today. A dedicated Fiduciary Management team sits within our wider Pension Solutions team. The team has built up a unique skillset with members having experience across both pensions consultancy and asset management including direct portfolio management responsibilities. With this blend of consultancy and asset management experience, abrdn is well placed to understand the client need and build tailored fiduciary solutions.

As a large global asset manager, we have the benefits of scale and deep expertise across key asset classes and strategies. Supported by portfolio management and dedicated risk teams, this allows our Fiduciary Managers to build well-diversified bespoke portfolios to meet schemes' long-term objectives with in-house investment componentry. We have a strong track record of adding value for our clients over many years, including taking a £5bn UK DB scheme from a material deficit into a healthy surplus in a very measured fashion over a 17-year period.

For more information please contact pension.solutions@abrdn.com

Our goal

At abrdn, our vision is to invest for a better future. We want to make a difference for our clients, society and the wider world – while also delivering financial returns. Environmental, social and governance (ESG) considerations have been an integral part of our decision-making process for almost 30 years. By putting ESG factors at the heart of our investment process, we believe we can generate better outcomes for our clients. The impact of Covid-19 makes this goal even more important. Now, more than ever, we need to work together for a more sustainable future.

Our approach

Responsible investing is about delivering value for clients. Our approach falls into two areas. At the investment stage, we use ESG factors to help decide where best to invest. We integrate ESG into our research, analysis and decision-making processes. We also manage specialised funds that incorporate stronger sustainability or ethical principles. Where we believe we can influence or gain insight we actively engage with the companies and assets in which we invest. We believe this will create long-term value, including in relation to ESG practice. Where we have rights, we also vote at AGMs of target companies to drive change.

Our commitment

It starts with us. As a company, we focus on key societal and environmental issues that matter to our stakeholders, and on which we can have a positive impact. Operationally, that means providing fair and inclusive work and reducing our emissions with a target to reduce the carbon intensity of the assets we invest in by 50% by 2030 vs a 2019 baseline.

The importance of hedging interest rate and inflation risks

Movements in long term interest rates and inflation can have a big impact on pension scheme funding levels, particularly where the scheme does not have a high level of hedging in place to reduce these risks. Of particular note during the start of 2020 was the influence that COVID-19 had in March, and the impact of the UK’s Mini Budget announcement in September 2022, where we experienced all-time high levels of interest rate volatility.

LDI solutions for all sizes of scheme

We work with schemes of all sizes to deliver LDI solutions to meet their specific requirements. This ranges from segregated mandates through to our flexible pooled LDI fund range. Our pension solutions team works with trustees and their advisers to help them create a solution across the pooled fund range to meet their requirements.

Integrating growth and protection

There are a large number of schemes that are looking to increase their level of interest rate and inflation hedging without sacrificing growth. Our Integrated Liability Plus Solutions (ILPS) funds are a unique, innovative approach to liability management that integrates a cash-efficient return engine with liability hedging within a suite of pooled funds.

Schemes are maturing and becoming cash flow negative

As DB pension schemes close to accrual and mature, a growing number of schemes are turning cash flow negative – with the amount paid out to members each year exceeding the amount the scheme receives in annual income from pension contributions and investments. It is important for these schemes to have a plan in place to manage their income requirements.

Implementing a cashflow aware strategy

Depending on the requirements of your scheme, this could range from looking to access sources of contractual income all the way through to a full cashflow driven investment (CDI) strategy. (CDI is where a pension scheme invests in assets that provide contractual income to match as far as possible the expected future cashflow requirements of the pension scheme.)

Schemes of all sizes can now implement a CDI strategy

Historically, a CDI approach was only really available to larger pension schemes. However, innovations in pooled fund solutions mean that schemes of all sizes can now implement this type of strategy, efficiently and at a low cost. Trustees can now choose from a full range of pooled buy-&-maintain credit funds, pooled funds offering access to alternative sources of contractual income (such as private credit) and pooled LDI funds and tailor these to meet the unique cashflow and hedging requirements of their scheme.

Volatility in funding levels continues for many schemes

Over the past few years many pension schemes were experiencing a gradual improvement in their funding level, and a smooth course was being set for the pension scheme to navigate towards its endgame. However, the impact of COVID-19 on pension schemes during 2020 has shown it’s perhaps not going to be as smooth sailing as some were expecting.

Breadth of approaches to meet your requirements

Depending on your specific circumstances there are a wide range of approaches to deliver the growth that is required to improve your funding level. Our investment expertise and capabilities span equities, fixed income, real estate, private markets and Multi Asset Investing solutions.

Integrating growth and protection

There are a large number of schemes that are looking to increase their level of interest rate and inflation hedging without sacrificing growth. Our Integrated Liability Plus Solutions (ILPS) funds are a unique, innovative approach to liability management that integrates a cash-efficient return engine with liability hedging within a suite of pooled funds.