Solutions outlook 2024: What lies ahead for DB schemes?

In this outlook we set out key themes for the year ahead, including renewed focus on credit allocations, hedging, falling longevity and equity derivative strategy.

We believe that the year ahead will continue to see significant focus from trustees on the core DB scheme purpose of paying pensions. However, as pension funds continue to mature (with average liability duration now around 13 years¹) and with funding levels much higher, it's important to note that the question of 'how to pay pensions’ does not have a single right answer.

In this overview we set out our themes for 2024, covering interest rates, credit and equity, while also picking out a handful of interesting areas to investigate in more detail. In our view, the accompanying market dynamic running through all these asset classes and feeding into
investment strategy is the potential for ‘peak rates’. Specifically, if we have indeed reached the peak bank rate for this cycle then what next? And what does that mean for pension fund allocations and strategy?

1Source: LGIM analytics, as at 30 October 2023, based on average liability benchmark durations across LGIM clients