Pensions, Covenants and Insurance

Before moving to consider the ALM problem for UK defined benefit pension schemes or, more correctly, voluntary self-administered pension schemes, and their corporate sponsors, we shall first address briefly a few elementary issues relevant to the subsequent analysis. We omit any consideration of local author-ity and quasi-government schemes, though it should be realized that the term ‘corporate’ encompasses many ‘not-for-profit’ and charitable concerns, as well as many other companies, such as the Bank of England, that are popularly believed to be part of government. This is broadly the population of company-ies, currently some 18,000 or so, whose schemes are required to subscribe to the United Kingdom’s Pension Protection Fund (PPF). We shall describe the principal terms of the optimal pension indemnity assurance policy that in turn facilitates optimal pension management by the sponsor employer and scheme, together with the ALM overview of that assurer. In this chapter, the central thrust may be acquired by reading just the bold body text. Footnotes contain illustrations and peripheral arguments and information. The boxes contain explanations and illustrations of theoretical concepts.