Asset Liability Modelling and Benefit Solution

An Actuarial Case Study

Invesco was asked to perform a benefits strategy review for a client, an international manufacturing company.

The company's key objectives going into the process were as follows:

• To minimize risk in the pension plan as much as possible on an accounting basis
• To remain positively benchmarked against the market norm for pension provision in their sector
• They wanted a long-term sustainable solution that would not have to be revisited

Following discussions with the company regarding the range of potential options a more detailed analysis on a more concentrated number of options was performed. The analysis focused on the company's objectives and used scenario modelling, VaR and other actuarial tools to assist the company in making its decision.

After analysis at both local and corporate level, the existing final salary pension plan was replaced with a final salary cash accrual plan to follow a bond investment strategy.

In this way, there was a greater sharing of risk between the company and member: the post retirement risk was transferred to the member and the company continued to take the pre-retirement risk, albeit with a more conservative investment strategy.