What is pension de-risking, and how does a liability-driven investment (LDI) approach work for a corporate DB scheme?

A defined-benefit pension is a long-dated, interest-rate- and inflation-sensitive liability that can dominate a corporate's risk and create volatile funding demands. De-risking aims to reduce that volatility and ultimately remove the liability. LDI is the core investment technique: rather than chasing return against an equity benchmark, the scheme structures assets to match the liabilities' sensitivity to interest rates and inflation — typically using bonds, swaps, and gilt/index-linked instruments (often leveraged) so that when rates fall (raising the present value of liabilities) the hedging assets rise correspondingly, stabilizing the funding position. Further de-risking steps along a 'flight path' include shifting from growth to matching assets as funding improves, then buy-ins and buy-outs (insuring/transferring the liability to an insurer) or longevity swaps (hedging the risk members live longer). The treasury relevance: it stabilizes the deficit/contributions, but LDI's leverage created collateral-call liquidity risk — vividly shown in the 2022 UK gilt crisis, when rapid rate rises forced schemes to post collateral fast. So de-risking must be paired with liquidity management.