Managing cashflows in the LGPS – what are your options?

Income vs outgo – a balancing act

Those responsible for LGPS schemes recognise an uncomfortable truth: increasing demands on the collective purse, aka outgoings, could outweigh income – and sooner than expected. On the one hand, income flows in regularly from contributions, and irregularly in the form of investment income and the realisation of capital from closed-ended illiquid investments.

On the other hand, outgoings are mounting as LGPS membership matures, members start drawing their pensions, and the number of new, contributing, members is uncertain. Inflation is an exacerbating factor affecting LGPS outgo, with very high CPI increases coming into force from April 2023. But even if inflation retreats from its current above-target levels, it will remain a source of pressure on LGPS funds. 

Against this backdrop, LGPS funds may want to take a more hands-on, structured approach to managing their cash and highly liquid assets. For example, higher base rates and credit spreads create better returns for those willing to take on a modest amount of term, liquidity or credit risk. This could result in an additional return that could be as much as 2%*1 pa (or £200K per £10 million invested) in the context of some of the solutions we explore below. Cash can also be kept for strategic asset-allocation reasons.

Download our briefing note for more on:

• Illiquid assets and cashflow demands

• Investment options

• Why a bespoke structure is key

• Other considerations 

If you would like to discuss further, please get in touch here, or contact your usual Hymans Robertson consultant.