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Investment: risk and reward

Meeting investment objectives in funded DB schemes

Setting investment strategy for a funded defined benefit scheme involves the trustees deciding on the main elements of how the assets of the pension scheme should be invested. Trustees generally review investment strategy at a minimum every three years, including a review of the overall strategy, the approach to matching assets to liabilities, and objectives, investment performance and risk.

The outcome of an investment strategy review is the setting of an investment policy describing the allocation of assets between the various asset classes (equities, property, bonds, cash and potentially other assets including alternative investments), and how the nature of the liabilities has been taken into account.

Some DB schemes invest in a way that closely matches the pension scheme's liabilities to pay benefits to members. Other schemes take higher risk by not matching so closely, with a view to getting a better return. If you are a member of a scheme where assets and liabilities are not closely matched, there is a risk that a deficit could arise or get worse in the future if the chosen investment strategy does not work out.