PwC finds pension schemes shifting investment strategy

Four in five pension schemes believe they are likely to become cash flow negative within the next five years and are considering changing their investment strategy, according to research from PwC

The firm’s survey of 100 corporate sponsors and scheme trustees found schemes are increasingly looking towards lower risk, higher yielding assets, leading to an increased interest in illiquid assets matching scheme cashflows. It also identified increasing allocation to liability driven investments (LDI) and to hedge interest rate and inflation risks.

Sinead Leahy, head of pension investment consulting at PwC, said: ‘It’s no surprise that people leading investment strategy are thinking more closely about how their assets can be better matched to their liabilities as schemes mature.

‘The survey also indicates a widespread agreement that valuation methods need to be more closely aligned to investment strategy. Just over seven in 10 respondents said now might be the time to consider alternative valuation methodologies. This is understandable given that falling gilt yields have increased deficits for many schemes highlighting the mismatch between assets and liability valuation methods.’

The majority of schemes (70%) review investment strategy at least annually, and nearly two thirds feel that their current investment strategy is on track to reach full funding within agreed recovery periods, without additional support from their sponsor, the survey found. More than 50% of schemes still manage funding, investment and covenant separately.

Leahy said: ‘Governance is clearly an area that’s increasingly under the spotlight and that will continue to be the case following the publication of the Competition and Markets Authority’s (CMA) review into of the investment consultants market. The survey suggests that of the schemes which have fiduciary management, only half conduct an oversight of their provider every year.

‘As the CMA recommendations begin to have an impact, we expect to see an upturn both in greater scrutiny when selecting a fiduciary manager and the oversight of these arrangements.’

Pension Investment and Governance Survey 2018 is here

Report by Pat Sweet

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