Proficient Gambler

Judge’s comment: “Very strong performance that reflects the clear innovation involved in SAUL’s solid pensions risk management framework.”

The €2.3bn Superannuation Arrangements of the University of London (SAUL), which was set up in 1976 to provide retirement benefits for non-academic employees of the University, has grown to be a large multi-employer defined benefit scheme, providing dedicated services to over 41,000 members at 52 universities and colleges across the south-east of England.

SAUL’s overriding objective is a sustainable and affordable fund and over the years its asset allocation has evolved from long-only passively managed and multi-asset consensus mandates to an asset allocation where active management in selected asset classes can thrive. Risk is an important part of the fund’s diversified investment strategy and it has developed a bespoke model to ensure its portfolios are managed optimally.

SAUL’s Pension Risk Management Framework (PRMF) was established in March 2012, and sets out with absolute clarity its objectives and risk-reduction targets, against which all its investment decisions are evaluated. SAUL’s focus continues to be on not only assets but also on liabilities, which represent the biggest risk to its funding level and sustainability over the long-term.

SAUL continues to look at ways to refine its risk framework and has recently introduced various new risk measures, such as contributions-at-risk, in order to aid long-term decision making by factoring in the affordability of the scheme to the underlying employers. The PRMF currently includes the following metrics:

•              Overall objective: this is to achieve full funding on a government-bonds-plus-40bps basis by December 2036, while ensuring the scheme has sufficient liquidity to meet pensioner payments as they fall due.

•              Return on assets: this aims to ensure the expected return on SAUL’s assets remains above the return required to reach full funding by December 2036.

•              Risk targets: there are two. The first is a value-at-risk target, which seeks to provide the adequate stability of the scheme’s funding level by ensuring the overall asset value does not fall by more than the equivalent of 20% of the liabilities value. The second is contributions-at-risk. This concerns the minimum increase in contributions each year that the scheme could impose over one year as a percentage of the liabilities.

•              Liability management. With an increased focus on the its liabilities, SAUL implemented a dynamic programme of interest-rate and inflation hedging at the same time that it adopted the PRMF.

SAUL has adopted a time-based approach whereby a fixed percentage of outstanding interest rate and inflation risk is hedged on a quarterly basis. In addition, it has a funding-ratio trigger framework that enables implementation of additional interest rate and inflation hedging should the funding level reach pre-determined trigger points. This approach has allowed SAUL to swiftly capture transient improvements in funding ratio that may otherwise have been missed. Meetings have been arranged within 48 hours of a trigger being hit and the hedging implemented within a further 24 hours.

Over the year, as part of the evolution of its liability driven investment mandate), SAUL gave its manager discretion to implement the hedging using a combination of government bonds and swaps. This has allowed the scheme to benefit from an enhanced yield pick-up over the long-term. Currently, 62% of the interest rate sensitivity of liabilities and 74% of the inflation sensitivity are hedged.

As a result of the full integration of the PRMF model into the decision making process, the progressive programme of interest and inflation rate hedging has continued to protect SAUL’s funding level, which is particularly exposed to further falls in interest rates. This has also resulted in a reduction of value-at-risk from 33% in 2012 to 22% by March 2015.

2014 Essentials

Superannuation Arrangements of the University of London (SAUL)

United Kingdom

Founded in 1976

Defined benefit multi-employer fund


  • active: 14,599
  • retirees: 9,199
  • deferred: 17,275

Assets: €2.3bn


  • one year: 15.2%
  • three years: 11.8%
  • five years: 10.2%
  • ten years: 8.2%

Quick facts

  • Development of in-house risk management framework
  • Trigger points to warn of threat to funding level
  • Key metrics include value-at-risk and contribution-at-risk


  • Amonis OFP Belgium
  • Pension Protection Fund United Kingdom
  • SPK Sweden
  • Trafalgar House Pension Trust United Kingdom


  • Stefan Lundbergh
  • Richard Campbell
  • Jereon de Soete
  • James Kavanagh
  • Geert-Jan Troost