Simplified solution helps small and medium-sized defined benefit pension plans manage interest rate risk
MONTREAL , Feb. 4, 2013 /CNW Telbec/ - The Standard Life Assurance Company of Canada ("Standard Life") announced today that its target liability bond funds have attracted just under $50 million in initial investments from three existing clients, including CCH Canadian Limited and CYTEC Canada Inc. These funds are designed to respond to the needs of defined benefit (DB) pension plans to de-risk their portfolios. They leverage the expertise and quantitative research capabilities of Standard Life Investments Inc., an affiliated company of Standard Life, which introduced a liability-driven investment (LDI) solution for large pension plans in 1998.
LDI solutions represent a clear departure from the traditional, balanced approach for managing DB pension plans that focuses on the return of assets, but ignores the interest rate risk inherent to liabilities which is critical to long-term pension plan solvency. Standard Life's new solution is particularly attractive to small and medium-sized pension plans whose financial resources would not normally allow them to access the sophisticated options they need to meet existing and anticipated liabilities.
"Whether they are large or small, times have changed for DB pension plans," says Michel Fortin , Senior Vice-President, Marketing and Customer Solutions. "Many plans are approaching maturity and, as pressures on solvency mount due to historically low interest rates, a new way of thinking is required to ensure plan sponsors meet payout obligations. Our liability-driven investment framework offers an innovative and more effective solution to manage interest rate risk without sacrificing growth potential."
Standard Life's simplified LDI solution is a series of long, mid and short-term liability government bond funds that corresponds to specific Canadian pension plan profiles representing different combinations of active and retired employees at three stages (young, mature and retired) of the pension plan life cycle:
- Long-term liability government bond fund: demographic profile with a majority of active employees; duration of 18 years.
- Mid-term liability government bond fund: demographic profile with a majority of retirees; duration of 13 years.
- Short-term liability government bond fund: demographic profile of 100% retirees; duration of 7 years.
Plan sponsors can allocate assets between the three funds and base investment decisions on the percentage of liabilities associated with active and retired plan members, on the duration of liabilities or on expected cash flows.
Investment management fees for Standard Life's new target liability bond funds are lower than actively managed traditional bond funds. The new funds are managed by Standard Life Investments Inc.
About Standard Life
Standard Life plc is a leading long-term savings and investment company headquartered in Edinburgh , Scotland. Standard Life has around six million customers worldwide and operates in the United Kingdom , Europe , North America and Asia, and globally with Standard Life Investments Ltd.
In Canada , Standard Life has been doing business for almost 180 years. It operates under Standard Life Financial Inc., which wholly owns The Standard Life Assurance Company of Canada and Standard Life Mutual Funds Ltd. It is Standard Life plc's largest operation outside the UK with about 2,000 employees. It provides long-term savings, investment and insurance solutions to more than 1.4 million Canadians, including group retirement and insurance plan members.
As of September 30, 2012 , Standard Life plc had C$337 billion in assets under administration, including C$44 billion in Canada through Standard Life Financial.
SOURCE: STANDARD LIFE
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