The importance of positive pension scheme cash flows

6.7 While the net cash flow is positive, there is no need to sell any assets and therefore no disinvestment risk to the USS. Low market prices are beneficial during this {…} period of positive net cash flow [because assets are being purchased more cheaply], so a measure of risk which suggests a market fall is a problem would be giving a wrong message.

6.8 While there is no requirement to sell assets, volatility from market value fluctuations is not a concern for the USS: the main concern is the volatility in asset income. Measures of risk and funding level which are market value sensitive, as opposed to asset income sensitive, are likely to be inappropriate in this context and should be given little attention.

6.10 In the {…} scenario of USS continuing as an open scheme sponsored by employers with a robust covenant, the issue of very high relevance is the rate of growth of asset income. Income uncertainty, not market value volatility, is the key issue for the scheme.

Source: Robert Shiller, Irrational Exuberance, 3rd ed.

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