LGPS forecast to record negative cashflow in near-term

The LGPS will be in an aggregate negative cashflow position within the next few years, investment advisory group Linchpin has forecast, as the yield on assets traditionally used to match liabilities has slumped.

During the year to March 2020, there was a deficit of 1.2% in contributions over expenditure, according to data from the Ministry of Housing, Communities and Local Government, a shortfall plugged marginally by 1.6% of income. Net transfers into the scheme amounted to an additional positive cashflow, resulting in an overall surplus of 0.9%.

There were 34 individual funds who had negative cashflow after including investment income in 2020, compared to 38 in the previous year, although if transfers in and out of funds are included, that number reduces to 18.

Of these funds, nine are amongst the 15 most mature funds within the LGPS, with active members less than 29% of the total membership.

Funds should carry out two separate exercises, said Linchpin founder William Bourne, the first of which should be to look at short-term flows over the next three to five years.

“The second is a longer-term plan over 20 years or so in order to identify gaps which may need to be filled,” he said. “The data here on both asset and liability sides will inevitably be dependent on more or less heroic assumptions, but there is sufficient to paint the bigger picture.”