Insight

The Pension Scheme Paradox and How to Solve It

Pension schemes’ reliance on UK credit introduces risk that may become amplified as demand grows. We believe the path forward should include active management and diversification.

Yellow building with black windows.

7/16/2024

10 min read


Topic

Systematic Research

Key takeaways

  • Improved funding levels in recent years have prompted schemes to de-risk, leading to increased UK credit exposure.
  • The draft defined benefit funding code is also motivating schemes to increase UK credit to become less dependent on contributions.
  • Whilst these measures prioritise safety, they paradoxically expose schemes to a number of hidden risks unique to UK credit markets.
  • This paradox can be mitigated by adopting liquid alternative credit strategies that complement physical credit allocations.
  • Allspring’s Global Credit Alternative strategy is a customisable synthetic credit strategy that uses equity index options to harvest credit risk premium.