Aon has said that with 2022 promising to be another active year in the UK pension risk settlement market, an increasing number of schemes are focusing on their investment approach in the bid to be ‘settlement ready’.

Aon’s recently released Global Pension Risk Survey 2021/22 showed that more UK defined benefit (DB) pension schemes are now opting for buyout as their long-term target rather than just self-sufficiency. To prepare for that, schemes are ever more aware that they need to take steps such as data cleansing, providing benefit specifications or agreeing their governance structure. They also know these projects need to start well in advance of a transaction to ensure no delays when the right insurer pricing becomes available. Schemes are also seeing the benefit of taking the same approach with their assets – investing with the endgame of buyout in mind and starting the preparation as early as possible.

Lucy Barron, partner at Aon, said: “Whatever the timeframe they have in mind for reaching their scheme’s endgame, trustees need to think about the most efficient investment strategy that will allow them to reach it. There are several investment options to consider that give schemes the best opportunities. For example, ensuring liabilities are fully protected against movements in interest rates and inflation helps reduce the risk of assets moving in a different direction – something which is increasingly a consideration.

“Trustees will need a portfolio that is well-diversified so that it can navigate volatility and generate the returns needed but with the least risk possible. It also needs to give them the option of sufficient flexibility and liquidity to capture opportunities should they arise earlier. Similarly, holding credit can provide some protection against insurer pricing moves, as it is often an attractive asset for insurers.”

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