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Nearly three-quarters of UK defined benefit (DB) pension schemes are now cashflow negative – an outgoings gap that is likely to increase as schemes continue to mature, members transfer out and use the flexibilities allowed under Freedom and Choice.
However, while being cashflow negative is becoming a normal scenario for DB schemes, it does present specific challenges as assets need to be properly managed in order to meet cashflow and collateral needs – planning that is especially important during extremely volatile market periods such as those experienced over the past month.
Disinvesting assets remains the most common way for schemes to meet cashflow requirements but an increasing number of pension funds are looking to alternative ways of meeting their cashflow needs such leveraging as leveraging investment managers to distribute income from held investments or employing cashflow matching approaches - buying specific investments that distribute cashflows at periods matching required outflows from a portfolio
Having a clear strategy is clearly important. Professional Pensions’ April focus will look at the specific cashflow challenges schemes have been facing during the disruption and market volatility caused by Covid-19; explore how different schemes are managing cashflows; and ask if there is a need for pension funds to reconsider what they are currently doing in this area.
It will also look at why schemes may need to adapt their current strategy to meet short-term scheme payments and assess how cashflow-driven strategies can be integrated with a scheme’s overall liability-driven approach.
Editor-in-chief, Professional PensionsView presenter info
Jonathan is editor-in-chief of Professional Pensions and has been reporting on UK occupational pensions since 2001.
He was named IA Pensions Journalist of the Year in 2015, SPP Journalist of the Year in 2014 and 2011 and is holder of the PMI's Retirement Provision Certificate.
Solutions Manager at SchrodersView presenter info
Patrick O’Sullivan is a Solutions Manager in Investment Solutions - part of the Portfolio Solutions group at Schroders. Patrick provides solutions for institutional clients with complicated investment goals and challenging constraints resulting from risk-preferences and regulatory considerations. Prior to joining Schroders, Patrick acted as deputy-head for EMEA Pension Solutions and Advisory at J.P. Morgan Asset Management where he worked with UK and European clients – mainly defined benefit pension schemes. He has additional experience in commercial and central banking from time spent with Bank of Ireland Global Markets and the Central Bank of Ireland. He was formerly a tenured lecturer of Finance where his research focused heavily on portfolio selection, risk management and Strategic Asset Allocation. Patrick has a Ph.D. in Financial Economics from University College Dublin and a First Class undergraduate degree in Financial and Actuarial Mathematics from Dublin City University.
UK OCIO, BlackRockView presenter info
Sion Cole, Managing Director, is Head of UK Fiduciary in BlackRock's Institutional Client Business. Sion joined the firm in 2019 and is responsible for developing and maintaining relationships with our fiduciary management clients.
Principal Investment Consultant, AonView presenter info
Louis-Paul Hill is a Principal investment consultant at Aon where he advises corporate and public-sector pension schemes, with assets ranging in size from £20m to over £9bn. He also leads Aon's Cashflow & Endgame team, who help clients with their cashflow policies and designing end game portfolios.