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Since Wellington started managing assets for local authority pension schemes in 1999, the number of members who are active employees has fallen significantly. This evolution in membership has led to a cash-flow mismatch, with fewer employees providing regular contributions and more former employees requiring benefit payments to be made.
We compared the contributions (inflows) with the benefits paid (outflows) for each of the 86 schemes in England and Wales (Figure 1). Each dot on these charts represents an LGPS scheme. Schemes with a cash shortfall (which we define as the excess of the benefits paid over the contributions) are represented by the dark-blue dots, and those with no cash shortfall are represented by the light-blue dots. We have observed a clear trend to the left of the diagonal line between 2012 and 2020, as expenditure has stayed relatively constant and contributions have declined. For ease of comparison, both metrics are shown relative to the market value of the scheme.
To manage this cash shortfall and pay their pensioners without needing to redeem any holdings, LGPS schemes are turning to one primary solution: investment income. As the need for income has increased with the fall in contributions, LGPS schemes are increasingly…
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