In Italy, some pensions are obligated to offer a capital guaranteed subfund to plan participants. While many participants see guaranteed subfunds as safe options, the investment may not meet their long-term retirement objectives. In this article, Milliman’s Dominic Clark highlights asset-liability management (ALM) analyses that were conducted for a large institutional Italian pension fund. The client’s main aims were twofold:
• To better understand the fit between asset allocation and expected future liabilities given the constraint of having to respect the capital guarantee of the guaranteed subfund.
• To better inform participants regarding the likely evolution of their account balances, and in particular, provide fund-specific projections that can help guide members in their choice of future contribution levels.