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Thank you, Sally, for adding your name to the call for cash flow based valuation of pension funds - we look at the expected liability cash outflows, but since actuaries generally switched to market based actuarial valuations of pension schemes around 1999, we no longer look at the projected asset cash flows! Rather, we look at market value of assets (with all that volatility!).
If the market value of a particular asset that a fund is holding changes by 5%-10% one day, is that because we expect the future stream of cash flows from that asset to have changed significantly?
Rather than compare market value of assets with a discounted cash flow value of liabilities, it must be better to compare the expected future cash outflows with the expected future cash inflows and calculate a discounted cash flow value of the excess net inflow (to determine the expected surplus).
In carrying this out, rather than using an often volatile short term market-based discount rate, it is better to use a longer term value being an average of the discount rates underlying the current contributions or pension awards. This is where the debate should be and a reversion to dcf based asset valuations, rather than market valuations, which are actually only relevant (at least in theory they're relevant) if the assets are being realised - e.g. to buyout the scheme!