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Trigger Strategies

Triggers are typically designed to reduce the risk that a pension scheme is exposed to when circumstances are suitable. Funding Level triggers usually reduce a pension scheme's allocation to return-seeking assets as the funding position improves and the scheme no longer needs to seek as much return. Yield or inflation triggers will typically increase the Hedge Ratio of the scheme, at times when yields are attractive for the scheme to do so.

Over recent years the industry has seen an increase in the prevalence of such triggers, perhaps driven by the number of occasions on which schemes have missed opportunities to bank improvements in their funding position. However there are also other desires to de-risk, including maturing of schemes, peer pressure and the desire to have lower reliance on sponsor covenant (or reduce the risk to the company).

Around 30% of schemes now have triggers in place, with the majority of those relating to funding level, and the popularity of triggers covers schemes of all sizes.

Aon's trigger research and surveys track the rise of triggers, including how effective they are at capturing gains, how they have evolved since they were first introduced, and how they have reacted to the rise and fall in funding positions.


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