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UK leads the way in liability driven pensions

The UK is one of the four European countries leading the way in using liability-driven investment strategies for pension schemes according to a new survey.
Research conducted by JP Morgan Asset Management across Europe has found that a fifth – 19 per cent – of pension schemes are currently using a LDI strategy. A further 29 per cent intend to implement LDI strategies in the near future with only 10 per cent thinking LDI is just a fashion.
The four countries using LDI strategies the most are the Netherlands, Denmark, Sweden and the UK. LDI strategies are having a significant impact in countries where funding regulations push pension schemes to value their liabilities with market rates. In the UK 44 per cent of pension schemes either use or are considering using LDI.
In terms of constructing an LDI strategy over two-thirds of pension schemes believed it made sense for all pension funds whether in surplus or deficit. The UK, which reported the highest percentage of schemes with a pension deficit – 74 per cent – was the country most willing to use leverage to address a funding deficit.
JP Morgan head of client solutions Europe Karin Franceries says: The findings in this survey show that while LDI is very much being discussed across Europe actual take-up and perception of what it should entail varies widely between countries.
The UK is a fascinating example of this as, whilst there is a greater prevalence of pension scheme deficits, there seems to be a reticence to fully embrace LDI strategies, with 56 per cent of respondents not currently considering LDI. We believe, however, that this will change as more UK schemes realise that LDI extends beyond cash flow matching and can also deliver excess returns, to help close pension deficits.


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