Turning retirement savings into a predictable, inflation-linked income
LKPM Capital is designing the Retirement Bond: a portfolio of UK government bonds built to deliver around twenty years of retirement income, as the low-risk building block of defined contribution default funds.
Income first
Built and measured in units of retirement income, not only in pounds of capital.
Inflation-linked
Cash flows matched with index-linked gilts to preserve purchasing power.
Built for institutions
Designed for master trusts and group personal pensions, alongside their growth funds.
The “safe” part of a pension can still miss its target
As members approach retirement, DC default funds move savings into cash and bonds to protect the value of the pot. But what a retiree needs is income, and the income a pot can buy moves with interest rates and inflation.
A pot that looks stable in pounds can still lose a meaningful share of the income it can deliver. The Retirement Bond starts from the other end: it fixes the income objective first, then builds the portfolio that delivers it.
Protects the value of the pot
- Money market, corporate bonds or a broad gilt fund
- Value in pounds is relatively stable
- The future income it can buy changes with rates and inflation
- Not matched to any specific retirement horizon
Protects the income the pot will pay
- UK government bonds only, index-linked in the reference design
- Cash flows matched to a defined stream of retirement income
- Value in pounds moves with rates, but the income it delivers is designed to stay on target
- One fund per retirement cohort, valued and tradable at market prices
From an income objective to an investable portfolio
The Retirement Bond is a goal-hedging portfolio: a set of gilts chosen so that its cash flows replicate a target stream of retirement income.
Define the income
For example, twenty years of income from age 68, rising with inflation.
Price it on the gilt curve
Each future payment is valued with a real yield curve fitted to index-linked gilt prices.
Replicate with gilts
A factor-based, regularised optimisation matches the income’s sensitivity to level, slope and curvature of the curve.
Hold, monitor, rebalance
One fund per retirement cohort, monitored against its income target and rebalanced as the curve moves.
Simple, transparent, and honest about trade-offs
We think a retirement building block should be easy to explain to trustees and members, including what it does not do.
No leverage, no equities
UK government bonds only, from the first contribution.
Liquid by design
Valued daily at market prices and saleable at any time.
Not a guarantee
There is no insurer and no guaranteed amount. The value in pounds can fall, notably when real yields rise.
Longevity is separate
The income covers a fixed horizon. Lifetime cover can be added with a deferred annuity.
Built on published academic research
The retirement bond concept has been developed in the academic literature on goal-based investing, and a sovereign version has been offered to Brazilian savers through Tesouro RendA+ since 2023. Our work focuses on implementing it for UK pension schemes.
The publications below are cited for reference. Their authors are not involved in, and do not endorse, LKPM Capital.
- Flexicure Retirement Solutions
- Improving Interest Rate Risk Hedging Strategies through Regularization
- Efficient Decumulation Investing