• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • Spotlights
  • Digital Edition
  • PPTV
  • Newsletters
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
  • Events
    • Upcoming events
      event logo
      Webinar: Using passion for ESG to unleash member engagement

      This webinar will look at how pension schemes can harness their members’ interest in ESG to engage them more broadly with their pensions. In particular, it will look at exclusive research showing how members are reacting to ESG; their propensity to act versus their actual behaviour; and the expectations they have of providers in this regard.

      • Date: 26 Jan 2021
      • Webinar
      event logo
      Investment Conference

      This two part Investment Conference will bring you the latest updates from economists, asset managers and pension consultants. We will be taking a look at the outlook for the 2021 economy, alternatives, cashflow strategies and global equity markets to name a few, assessing how they fared through the volatility and what we can expect for the year ahead.

      • Date: 27 Jan 2021
      • Digital Conference
      event logo
      Webinar: What to put on your GMP Equalisation project roadmap for 2021

      This webinar will bring together views from actuaries, lawyers, administrators, trustees and data experts to look at the pragmatic, collaborative solutions that are open to schemes to solve the GMP equalisation challenges in 2021. It will assess the individual challenges schemes face with equalisations and provide some practical options that are available to resolve these issues.

      • Date: 02 Feb 2021
      • Webinar
      event logo
      Webinar: Will the world return to normal in 2021?

      In this webinar, PP editor Jonathan Stapleton will be joined by BMO’s chief economist Steven Bell and director of fiduciary management, Christy Jesudasan, alongside PTL trustee director Melanie Cusack and Isio’s head of fiduciary management oversight Paula Champion to discuss the significant impact of these themes on the pensions sector.

      • Date: 04 Feb 2021
      • Webinar
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Spotlights
  • Digital Edition
Professional Pensions
Professional Pensions
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
  • Investment

LGPS to become negative cashflow 'by 2024'

Walker: LGPS funds will have to make greater use of income on assets
Walker: LGPS funds will have to make greater use of income on assets
  • Stephanie Baxter
  • 14 January 2021
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

Local Government Pension Scheme (LGPS) funds are being urged to prioritise cashflow management as investors are challenged to find income in traditional fixed income and property markets.

Investment advisory firm Linchpin has predicted that the scheme will fall into aggregate negative cashflow - even when including stated investment income - within the next few years.

It comes as data from the Ministry of Housing, Communities and Local Government released last year revealed some 34 individual funds already had negative cashflow after including investment income in the year to 31 March 2020 - noting that, in aggregate, there was a deficit of 1.2% of contributions over expenditure, which was plugged by 1.6% of income. The LGPS had a 0.9% surplus when transfers into scheme were taken into account.

Related articles

  • LGIM Real Assets commits to deliver net-zero across its real estate portfolio by 2050
  • Boohoo acquisition of Debenhams leaves schemes with PPF
  • Eight schemes write to Number 10 to urge more action on climate change
  • Hymans Robertson commits to lifetime net-zero carbon by 2025

Linchpin founder William Bourne predicted that 2024 would likely be the year where the LGPS would go to cash neutral or negative.

"The private sector went negative cashflow some time ago and the LGPS is clearly going in the same direction. The downward trend is absolutely clear but the exact speed is a little less clear. It has taken longer to get to where we are than many people expected," said Bourne.

This is because income from equities has been rather higher than expected, as well as people leaving local authorities and lots of new employers coming into the LGPS, particularly academies.

"More and more funds will start to become net cashflow negative, or will have to make greater use of the income on their assets to meet those cashflow requirements," said Hymans Robertson's head of LGPS investment David Walker.

All LGPS funds should do cashflow planning even if they have positive cashflow, said Bourne. He suggested looking at short-term cashflows over the next three to five years, and then a longer term looking at 20 years into the future.

Income focused investment

Investment consultants have been advising funds to start building a greater component of income focused investment strategies with an overall asset allocation. Pension funds traditionally looked to the bond markets for income, but with yields still at historical levels, they are forced to look further across the income spectrum.

"Traditional sources of income like index linked bonds and investment grade bonds still have a role to play but certainly the prospective returns on those asset classes are looking a lot lower than they have been in previous years," said Walker.

For example, investment grade debt offers hardly any premium over government gilts, even at the lower end BBB credit ratings.

Instead, income-seeking investors have looked at real assets such as property but this has come under pressure during Covid-19.

Equity is one area that the LGPS is looking for income, said Bourne: "Funds have been buying equities because they can't really think of anything else to buy at the moment, and at least equities are still delivering income. In the absence of [income from] bonds, investment grade credit and real estate, it makes sense to buy equities."

Walker added: "The recent volatility or recovery that we've seen in equity markets has given the opportunity to trim some positions where the values have risen substantially, and naturally make use of those assets to meet ongoing cashflow requirements as well."

There is now a broader range of assets that funds are looking at in order to receive a more predictable income stream, such as private credit.

"That might counter some of the uncertainty over some asset classes like private equity where funds have focused on more yielding income focused allocations as part of their portfolios," said Walker.

With private equity, funds are almost certain to get something for cash flow planning but it is it uncertain exactly when they will get it, added Bourne.

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Investment
  • LGPS
  • cashflow negativity
  • cashflow
  • Hymans Robertson
  • David Walker
  • William Bourne
  • Ministry of Housing, Communities and Local Government

More on Investment

LGIM Real Assets commits to deliver net-zero across its real estate portfolio by 2050

LGIM Real Assets has committed to deliver net-zero carbon across its 76 million sq. ft. UK real estate portfolio by 2050.

  • Property
  • 25 January 2021
The consultant plans to halve its carbon footprint by 2025
Hymans Robertson commits to lifetime net-zero carbon by 2025

Hymans Robertson has pledged to be lifetime net-zero carbon by 2025, meaning it will offset all its carbon emissions dating back to its formation in 1921.

  • Investment
  • 25 January 2021
Britain is set to issue a green gilt this year
Green gilts to become 'one stop shop' for scheme needs despite 'greenium' and 'greenwashing' fears

Institutional investor demand for green UK sovereign bonds will be high as pension schemes seek to manage their climate change risks and tap up green opportunities, experts say.

  • Investment
  • 22 January 2021
Aegon is the first investor in HSBC's new Developed World Sustainable Equity Index Fund
Aegon partners with HSBC to embed ESG criteria into default funds

Aegon has embedded ESG criteria across its in-house workplace default funds through a partnership with HSBC Global Asset Management.

  • Investment
  • 21 January 2021
USS chief executive Bill Galvin has warned about the impact of Covid-19
USS: Cost of scheme is 'growing challenge' as future returns 'likely to be lower'

The Universities Superannuation Scheme (USS) trustee board has warned investment returns will be lower in the future than expected as it edges closer to concluding its 2020 valuation.

  • Investment
  • 20 January 2021
blog comments powered by Disqus
Back to Top

Most read

Livingbridge sells Broadstone to Intermediate Capital Group
Livingbridge sells Broadstone to Intermediate Capital Group
Mark Stocker dies following cancer battle
Mark Stocker dies following cancer battle
Pension Schemes Bill gets final approval and waits for Royal Assent
Pension Schemes Bill gets final approval and waits for Royal Assent
USS: Cost of scheme is 'growing challenge' as future returns 'likely to be lower'
USS: Cost of scheme is 'growing challenge' as future returns 'likely to be lower'
New TPR powers could lead to upsurge in clearance applications
New TPR powers could lead to upsurge in clearance applications
Trustpilot

 

  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading