OK, so what is it? Does it even exist? Well, it's a bit like an elephant,  which you can recognise when you see all of it. The essential criterion  is whether or not, normally the latter, future cashflows must be secured in the near future with some other entity, with assets needing to be  realised. In the past, for most pension schemes with contributions  continuing to be made, cash flows would have been positive for some time to come. So long as the trustees and sponsor are advised that this should be the case for at least say 10 years, then I reckon that gives long enough for the trustees (and sponsor) to weather equity risks, with returns likely to be higher than on bonds. Sadly, so many sponsors have been scared into closing pension schemes that cashflows are even less likely to be positive. TPR’s 2024 DB Funding Code of Practice (which came into force on 12 Nov 2024) and what may be introduced by the even more recent Mansion  House proposals could easily make matters worse.

As well as risk premia charts, I am also showing historic returns over 15 years, from either 1964 (EXcluding ILGs) or 1984 (INcluding ILGs), in both nominal and real terms (either average wages or RPI).

Given the existence of predators (private or public), how confident can the trustees and  sponsor be about how long they will have? So long as the issue has been  discussed, the trustees and sponsor are entitled to form their own views and act accordingly. In particular, investing in bonds is unlikely to  prove a panacea. It is far from clear that this issue is ever specifically covered by either the Statement Of Funding Principles or the Statement Of Investment Principles; I suggest it should be.

It is sometimes argued that it is necessary to focus upon market values in order to target discontinuance funding. However, if there is a long  term, then the target is a needless boundary constraint. In reality, the argument is circular, with wide solvency swings, essentially due to  mark to market, being taken as a reason for as speedy an exit as  possible, implying discontinuance. That circularity needs to be removed.

Where the responsible stakeholders agree it is reasonable to assume that they have the luxury of a long-term, say 15 years or longer, then equities are extremely likely to provide higher returns than bonds. This can be seen from history and likelihood.