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Berkshire funding level drops to 72%

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UK - The Royal County of Berkshire Pension Fund has told members there is no "serious financial shortfall" in the pension fund, despite admitting its funding level has fallen from 99.9% in March 2007 to 72% in November 2008.

In the March edition of 'The Quill' newsletter - sent to its pension fund members - the pension fund responded to reports at the beginning of 2009 suggesting the Local Government Pension Scheme (LGPS), which it is a part of, had a £35bn pension gap.

It told members these reports were "unfair and misleading" as "while it may be true that some LGPS funds have serious financial shortfalls, this is not true of the Berkshire Pension Fund".

The newsletter said its most recent actuarial valuation of the fund in March 2007 showed a funding level of 99.9%, which it attributed to not taking any "pensions holidays" when the markets were strong, so there was no deficit on an ongoing basis.

In addition, it claimed "recent falls in stock markets will not result in an increase in pension contributions from employers in 2009/10", because the contribution up to and including 2010/11 were set by the 2007 actuarial valuation.

That said, the fund admitted "like all other UK pension funds, we have incurred losses due to the financial turmoil of recent months, and this has had an effect on our funding position". It confirmed the fall in asset values and long-term interest rates "have inevitably resulted in the fund's solvency falling from 99.9% as at 31 March 2007 to approximately 72% as at 30 November 2008".

Despite this significant drop the pension fund, valued at £1.39bn (€1.54bn) in March 2008, claimed it is "ideally suited to benefit from current weakness in investment markets due to our positive cashflow", and argued "much can happen before the next actuarial valuation needs to be carried out" as it suggested the fund's solvency is "not wholly dependent on a recovery in equity markets" - a likely increase in long-term interest rates from growing government borrowing would also be "helpful".

Figures from the pension fund's annual report for 2007-08 meanwhile showed weak equity, corporate bonds and property markets had resulted in a total return of -6.7% - below the benchmark return of -6.2%.

The report also confirmed a Japanese equities mandate run by Schroders was terminated in August 2007, while the global equities portfolio run by Capital International was ended in February 2008 "following periods of poor performance".

This resulted in the temporary transfer of the Schroders funds into a Legal & General Japanese equity index tracking fund and the Capital funds into a structured note tracking the MSCI World index.
 
In June 2008, the pension fund then implemented a diversification strategy of its investment portfolio with tenders for a number of managers including active currency, commodities, global property and infrastructure, with the process expected to be completed by April 2009, at which point a second asset liability study will be conducted to examine market conditions. (See earlier IPE article: Berkshire diversifies away from equities)

Elsewhere, latest figures from the Suffolk County Council pension fund showed in the fourth quarter the 'No.1 scheme' returned -6.3% causing a fall in value from £1.18bn to £1.13bn at the end of December.

A projection prepared by the scheme's actuary, Hymans Robertson, revealed the funding level of the Suffolk scheme dropped from 89.2% in March 2007 to 63.3% by 31 December 2008, resulting in an increase in the pension deficit from £158m to £654m.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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