Capital backed funding arrangements: a new tool for DB pensions

Capital Backed Funding Arrangements – a new tool for DB pensions

What are capital backed funding arrangements (CBFA)?

Capital backed funding arrangements (CBFA) can offer tangible benefits in alternative risk transfer, as defined benefit (DB) pension schemes look towards securing member benefits in full. But what exactly are they, and how can their benefits and risks be assessed?

CBFAs can offer tangible benefits for defined benefit pension schemes to secure member benefits in full: reducing downside investment risk, covenant improvement, access to investment expertise, governance arrangements and potentially assistance to prepare for an insurance buyout or a low dependency strategy.

Arrangements offer distinct benefits when compared with DIY approaches, superfunds, DB master trusts and conventional insurance risk transfer policies.

What are the risks?

However, there are new risks to consider and this remains a relatively new area with limited standardisation or information in the public domain.  It is important to understand how an arrangement works both in the normal course of events, in periods of stress and if the arrangement is terminated.

In this paper – published by the Institute and Faculty of Actuaries¹ and co-authored by Invesco portfolio manager Derek Steeden – you will find a framework to allow an effective initial comparison, assessment and discussion of these arrangements. We hope it helps pension schemes to identify appropriate next steps.

Download the paper


  • ¹ Institute and Faculty of Actuaries,

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • Views and opinions are based on current market conditions and are subject to change. All information as at 1st August 2023 unless otherwise specified.

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.