30 Nov 2023 1 min read

Core DB strategy: Revisiting assets that pay pensions

By John Southall

All defined benefit (DB) schemes still need to pay pensions as they fall due. What's the right balance between cashflow-driven and ‘barbell’ investment approaches? And how should schemes’ strategies differ given low-dependency or buyout objectives?


While many DB schemes are at or near full funding on a buyout basis, it’s crucial not to lose sight of the ongoing need to pay pensions as they fall due as the market backdrop evolves.

Broadly speaking there are two ways to pay pensions:

  1. Use cashflow-driven investment strategies that harness credit and credit-like contractual cashflows, with LDI to plug the gaps
  2. Invest in a diversified multi-asset growth portfolio and LDI, which we call a ‘barbell’ approach[1]

There are several interesting arguments in favour of each approach that we outline.

Circumstances and beliefs matter, however, and it doesn’t have to be an all-or-nothing decision. Overall, we find that a bias towards cashflow-driven investment often makes sense in the endgame.

Please read our full paper on Core DB strategy: Revisiting assets that pay pensions


[1] A multi-asset growth and LDI strategy will not be barbell in the sense it includes mid-risk assets such as corporate bonds. However, we still use this name to reflect that these assets are only held for diversification purposes, and not for cashflow matching

John Southall

Head of Solutions Research

John works on financial modelling, investment strategy development and thought leadership. He also gets involved in bespoke strategy work. John used to work as a pensions consultant before joining LGIM in 2011. He has a PhD in dynamical systems and is a qualified actuary.

John Southall