BMO Low Dependency Solutions

Accurate and tailored low dependency solutions, designed for maximum efficiency, minimum governance burden and with full ESG integration.

Low dependency investing, whereby pension schemes de-risk to reduce dependency on their sponsor, is gaining momentum amongst defined benefit (DB) schemes looking for a simple and reliable solution for the latter stages of their funding journey.

Risk Disclaimer 

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested. Changes in interest rates and inflation expectations could have an effect on the value of your investment.

The Pensions Regulator’s (TPR) revised DB funding code of practice suggests that schemes de-risk towards a low dependency portfolio as a scheme matures. This regulatory push has driven trustees to reassess and define their long-term objectives. In particular, shifting the emphasis away from funding ratio and towards maturity when thinking about the timing of any de-risking.

The chart below illustrates the typical journey plan for a UK defined benefit pension scheme. Initially, a high allocation to growth assets and leveraged LDI allows schemes to manage liability risk in a capital efficient way, whilst targeting growth, in order to reduce the funding deficit.

Building towards low dependency

A diagram funding level
The graphic with Requirements of low dependency portfolio

Walking you through

Nicola Thorpe and Jonathan Smith take us through a summary of this new investment strategy.

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