Calum Cooper, Head of Trustee DB, said:

“The heightened focus on managing asset cashflows to meet liability cashflows is very welcome. However, trustees may be surprised to find out that the models used to measure and manage risk and return typically don’t allow for the primary reason schemes hold assets: i.e. for income to pay the pensions promised. Given this, how confident can trustees be in model driven asset recommendations?

“This is one of the reasons DB pension funds hold more growth asset risk than required. It boils down to a lack of clarity on risk, and crucially not modelling all the key risks. This is putting £250bn of members benefits on the line. Model misbehaviour matters. Cashflows matter. The models used by schemes should reflect both asset and liability cashflows to improve the chances of paying members’ pensions in full.”