UK – The chairman of the London Stock Exchange, Christopher Gibson-Smith, has argued that equities are the right asset to meet pension liabilities and fund retirement.
“Policymakers and the financial services industry are increasingly re-discovering that only equities provide the long-term returns that investors and society will need to meet liabilities and fund retirement expectations,” Gibson-Smith wrote in the Financial Times.
He pointed out that the nominal return on UK equities is 11.8% last 10 years – 5.8 percentage points higher than the nominal return on AAA rated corporate bonds – and 6.2 points higher than gilts.
“This is not just a recent trend. The data show that real returns on UK equities were higher than gilts during every decade of the 2-th century, except during the 1930s depression.”
There were four clear reasons for optimism about cash equities markets, Gibson-Smith argued.
First was the Pensions Commission’s plan for a national pensions scheme, which had “given a vote of confidence” to equities.
The second was the fact that the equity risk premium has fallen, suggesting investors believe equities to be less risky assets.
The third reason was that low interest rates have raised the relative value of corporate dividends – making stocks more attractive. Lastly there was a positive earnings outlook for UK firms.
“The future for equity markets looks very positive, both for companies raising growth capital and as an asset class for savers over the long term,” the bourse chief concluded.