Liability risk is the largest investment risk that many pension schemes face. Every scheme has a unique liability profile, which reflects the future payments promised to members of the scheme. Liability risk represents the risk that changes in long-term interest rates and inflation expectations cause the value of liabilities to move. Every scheme has a unique liability profile, which reflects the future payments promised to members of the pension scheme.
At Schroders, we take your unique liability profile and create a tailored matching portfolio to manage your liability risks.
CDI is a new take on an established idea. Many schemes do not have sufficient assets to invest entirely in UK government bonds to meet all future pension payments.
To try and meet this shortfall, pension schemes have constructed their investment portfolios to match these payments with lower risk instruments such as UK government bonds, while using higher risk assets such as equities to grow their capital to fill the gap - a traditional growth + matching strategy. CDI solutions involve establishing a portfolio of bonds with contractual cashflows that meet the pension scheme liabilities.
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