UK - Financial turbulence and a fall in equity values could mean trustees are in breach of the scheme's Statement of Investment Principles (SIP) and could make further equity purchases necessary, Buck Consultants has warned.

The consulting firm claimed pension schemes which were at, or close to, its benchmark weighting in equities before the recent volatility in the markets are now "likely to be underweight" because values have fallen.

UK Regulations require trustees to draw up a SIP, which sets out the principles of how investment decisions are made, including scheme policy on "the kinds of investments to be held, and the balance between different kinds of investment".

The SIP is generally reviewed every three years or following a "significant change in investment policy", but Steven White, London head of pensions & investment at Buck Consultants, warned following the recent market volatility pension schemes may need to act now.

In the current situation, schemes can take one of two 'advisable' options:

Commence the process of rebalancing back to the benchmark weighting, by purchasing equities in a measured and planned way, Reflect the lower value equity weighting in the SIP, but this would require an agreed change in strategy and employer consultation.

White suggested in most cases the most appropriate action would be to start increasing equity weighting with "stage increases over the next three to six months", even though the financial conditions still remain uncertain.

He stressed the importance for trustees choosing to rebalance the portfolios to use the most "up-to-date information on the value of the assets and the split between equities and other asset classes".

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