Cashflow shortages - the implications
As schemes mature, it's more likely that they will become forced sellers of assets irrespective of how well funded they may be. Understand and plan your cashflow requirements or you might get bitten!
It has been reported recently that half of local authority schemes risk having a cashflow shortfall. However, this is an issue for consideration by most private sector pension schemes as well. As schemes mature, the higher monthly benefit payments and reduced contribution income from those accruing benefits inevitably makes it more likely that schemes will become forced sellers of assets irrespective of how well funded they may be.
This is a significant point. Imagine the scenario where a scheme is fully funded on a scheme funding basis but finds itself cashflow negative and expects to remain so for some time. There are two options…
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