Closing the gap: funding discipline and ALM for pension funds

For pension funds, long-term promises meet short-term market reality. Funding discipline and sound asset-liability management are what keep the two aligned.

Why funding gaps open up

Deficits rarely have a single cause. Rising longevity lengthens liabilities, periods of low yields depress expected returns, contribution holidays defer cost, and market shocks erode assets at the wrong moment. Left unmanaged, small gaps compound into structural shortfalls.

Asset-liability management in practice

Good ALM starts from the liabilities, not the assets. It means understanding the duration and inflation sensitivity of the promises, then shaping the portfolio — often through liability-driven investing — so that assets and liabilities move together. Liquidity must be managed so the fund can meet cash flows without forced selling.

A pension fund is only as strong as the link between its assets and its promises.

Recovering a deficit

A credible recovery plan balances three levers: contributions, investment strategy and time. It sets a realistic path, stress-tests it against adverse scenarios, and is monitored against clear triggers so the trustees can act early rather than late.

Governance is the multiplier

Strategy only works if governance is sound. Capable trustees, a clear investment policy, regular scenario testing and disciplined review turn a good plan into delivered outcomes. The funds that stay resilient are those that treat governance as central, not administrative.

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