Standard Life Investments (SLI) has unveiled a liability-aware offering for defined benefit (DB) pension funds, aimed at helping them improve funding levels and achieve more stability.
The Liability Aware Absolute Return II Funds have twin aims of capital growth, of cash plus 3% a year, and liability hedging, for DB funds. The two funds give a choice of either fixed of inflation-linked protection. SLI’s Mark Foster, the leader of the pension solutions team, commented: “Liability protection doesn’t have to entail a performance sacrifice. Across the UK DB sector, the majority of schemes still hold a deficit and it is also estimated that over £1.3 trillion of liabilities have not yet been hedged, which demonstrates the need for this solution. The changing interest rate expectations and increased market volatility last year has only exacerbated the situation. By integrating stable investment returns and liability management we have constructed an efficient suite of solutions for schemes facing these challenges.”
Foster added that the funds were developed in response to DB pension funds requiring a more efficient solution than existing liability-driven investing (LDI) products. “With low interest rates, low returns and people living longer, their liabilities and deficits have increased. They urgently need effective mechanisms to protect them against big market moves whilst at the same time still adding growth to increase assets.”