There is plenty of discussion in the pensions industry over the potential benefits of investing like an insurance company. So why have so few schemes adopted this approach? To date, perhaps it is because it has been seen as only relevant to well-funded schemes. We, however, don’t believe this is the case, and many underfunded pension schemes could benefit from this approach, as well.

Meeting liability payments as they fall due is as critical to pension schemes as it is to insurance companies. In this respect, pension schemes would benefit from following a similar approach to investment as insurers, or more specifically, annuity providers.

To do this effectively requires a more holistic approach to strategy design, rather than relying on benchmark indices.

Pension schemes, by virtue of the fact they are not subject to onerous insurance regulations, can make even greater use of this approach than their insurance counterparts if they take advantage of a wider asset universe.

As a consequence, pension schemes have a unique ability to implement a ‘best of both worlds’ solution. In other words, they should think like an insurer and invest like a pension scheme.

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