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The first step (the initial strategy)
We analyse the investment risk under the pension scheme’s current strategy. The analysis looks at the variation in expected future funding levels, providing the trustees with an indication of how likely they are to meet their objective under the current and alternative strategies. In addition to monitoring ongoing funding level progression we also illustrate the impact of strategy changes on future expected contribution rates.
We are also able to examine in detail “Value at Risk” (or “VaR”) numbers over a short period, breaking them into component parts to identify where a scheme is most exposed to funding risk. This allows trustees to identify any concentration of risk and to illustrate the impact of altering the asset allocation on this concentration.
The aim in any risk analysis exercise is to identify and manage each individual risk. This can range from hedging the risk by holding appropriate assets or simply acknowledging the risk exists and monitoring it.