Hardly a week goes by without me receiving marketing material aimed at helping trustees to put in place some form of 'dynamic de-risking' flight path. The theory is simple enough; trustees want to take less risk, just not now. My fear is that these plans rely on mankind's natural optimistic tendencies and in the end boil down to making us feel better about doing nothing.

The future for the economy remains pretty bleak. Developed economies are facing years of low growth as governments and consumers look to manage the debt overhang built up over decades. Yet many pension fund trustees are prepared to risk their portfolio by betting that things will get better quickly, allowing them to justify continuing to run investment strategies that are much riskier than they need to be.

Dynamic de-risking strategies that seek to lock in good performance as a result of equity markets rising or liability values falling leave pension funds horribly vulnerable to nasty shocks. These shocks can result in increased contributions being demanded from scheme sponsors and, in extreme cases, could send companies to the wall. It is not in anybody's interest to run more risk than is necessary.

Rather than putting in place plans to de-risk at some unknown point in the future, trustees should instead focus on taking immediate action to improve their current investment strategy. From an investment perspective, "improve" simply means trying to achieve a better risk-adjusted outcome, where risk is measured in terms of the funding level volatility. I'm not arguing against setting long term objectives, this is a fundamental part of the process, I'm merely stating that there are changes that should be made to an investment strategy without delay.

There have been huge developments within the investment landscape in the past ten years, yet many de-risking plans ignore these. To paraphrase Einstein, an investment strategy should be as simple as possible, but no simpler. For me this has to involve the use of LDI strategies, as well as diversifying away from equities, in order to reduce funding level volatility. The ability to hedge liability risks without tying up a pension fund's capital is arguably the most significant development within the pensions industry in an eventful past decade as it enables trustee to reduce risk without needing to reduce their return target. Running a pension fund without using LDI is like running a business without using the internet; it can be done but it is horribly inefficient.

If a wholesale rethink of a scheme's governance is needed in order to implement such a strategy then so be it; this is too important to get wrong as a result of a limited governance model. Once trustees have "improved" their current strategy as much as possible, they can then consider how it might be de-risked in future.

So my message to trustees is to avoid the false security of a flightpath and focus on improving your current strategy.

By Steve Catchpole, senior client manager at Cardano