By Doug Flint, CFA, Head of UK Corporate Investment at Aon
Pension scheme investment is a topic that corporate sponsors of Defined Benefit (DB) pension schemes typically left to their trustee boards, potentially with a light-touch level of review to satisfy legal requirements (whereby trustees are responsible for setting the investment strategy subject to consultation with the employer).
The impact of the Pension Regulator’s Funding Code is the key driver behind Pensions Investment being more of a focus for employers, who are increasingly taking independent advice of their own. And it’s not surprising. The potential value on the table for them, as well as for their scheme members, presents a risk, but also an opportunity, to create a win-win for all.
The Challenges of the Regulatory Environment
A key aspect of the Code is that it mandates sponsors and trustees to agree a notional investment allocation in the long-term as the scheme matures, as well as a plan for getting there. While the trustees retain the power to deviate away from this in practice, this clearly gives sponsoring employers a greater role in collaborating with their trustee boards on this key issue.
One of our key takeaways here, for both sponsors and trustees, is that reducing target asset returns does not always lead to less risk under the Regulator’s metrics.
Investing in a More Volatile World
Market conditions have changed and are increasingly volatile and complex.
Early in 2025, we saw UK government bond yields peak at levels not seen in 15+ years. This prompted several sponsors to consider proposing to trustees that hedging levels be adjusted to lock in funding improvements (possibly combined with an acceleration to employer contributions to achieve this).
It is becoming increasingly apparent, however, that windows of opportunity like this are often short-lived – many sponsors are reviewing their investment governance models alongside trustees to consider how they can best take advantage of such opportunities in the future.
Doug Flint
Head of UK Corporate Investment at Aon
A Changing Landscape for Funding Levels Makes Investment Strategy Even More Impactful
The funding positions of many pension schemes has improved considerably in recent years. From discussing how to grow their assets, to funding goals being achieved. This has left not just trustees, but sponsors also asking, ‘what’s next?’.
An optimal investment strategy can generate real value for every stakeholder. For sponsors, this can come in the form of smaller cheques written upon insuring a scheme, a reduction in contributions along the way, or sharing of a larger surplus for those schemes running on.
All of this said, it should come as no surprise that corporate sponsors are, more and more, talking about (and acting on) Pensions Investment, a trend which is set to continue.
