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Choosing a de-risking roadmap

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Mark Duke, senior consultant, Towers Watson

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Choosing a de-risking roadmap

  1. 1. Choosing A De-risking Roadmap CBI Pensions Conference: 9 September 2010 Mark Duke
  2. 2. Risk reduction: A Shopping List <ul><li>Enhanced transfer values </li></ul><ul><li>Pension increase exchange </li></ul><ul><li>Early retirement exercises </li></ul><ul><li>Manage discretions </li></ul><ul><li>Changing the plan design </li></ul>Reducing the liabilities De-risking the assets Insurance solutions Buy-in (annuity) Longevity swaps Synthetic buy-in Pension captives Phased/structured buy-out Need to choose the right options in the right order Lock into asset gains – set triggers Diversify return seeking assets Use options to manage equity risk Continue to reduce interest rate and inflation risk
  3. 3. Fitting It All Together Control Hedge Shrink Governance
  4. 4. What de-risking steps are schemes taking? Source – 2010 Towers Watson survey
  5. 5. Where it begins Major risk factors: Equity, Credit, Currency, Longevity, Rates, Inflation
  6. 6. Planning options Funding level Time Buy-out Ongoing gilts Ongoing 1. How much? 2. By when? A B C 3. How? (balance of contributions + investment returns + risk tolerance) How much? By when? How? BUSINESS PLAN
  7. 7. Frameworks matter Philosophy and Guiding Principles Governance Responsibilities Key Metrics Targets/ Tolerances PENSIONS OVERSIGHT RESPONSIBILITY Supporting Controls and Processes <ul><li>More detailed policy/guidelines, as necessary, eg </li></ul><ul><li>Plan design/operation guidelines </li></ul><ul><li>Cost measurement policy/guidelines </li></ul><ul><li>Financing guidelines for longer-term commitments </li></ul>Establishing Strategy Operationalising Strategy
  8. 8. Risk measurement and aspirations Risks being run within the Pension Scheme INSERT SECTION TITLE Risk budget
  9. 9. Is the window open? Optimal purchase time? Pensioner only funding ratios (illustrative) Track pricing against your targets and be ready to act
  10. 10. Managing the plan Be able to act swiftly when the time is right Asset de-risking and funding Data cleansing Liability management Governance and monitoring Insurance products

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