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Mercer advises 39% of UK pension market – survey

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UK – Mercer advises 39% of the top 1,000 UK pension schemes, according to a new survey by J P Morgan Fleming.

“The three most commonly used consultancy firms among the top 1,000 largest pension funds in the private sector are Mercer (39%), Watson Wyatt (32%) and Hewitt Bacon & Woodrow (20%),” J P Morgan said.

Mercer advises 40% of the top 350 funds, up from 35% last year. It advises 36% of the next 650.

Watson Wyatt advises advises 43% of the top 350, up from 39% a year ago. It consults for 16% of the next 650. Hewitt advises 20% of the top 1,000 schemes. It advises 22% of the top 350, down from 25% a year ago.

Only one percent of the companies surveyed do not use a consultant, from four percent in 2003.

The survey found that 61% of respondents from the top 350 pension funds have closed or restricted availability to defined benefit schemes – and that 60% of respondents from the top 350 pension funds have a defined contribution scheme in place.

It found that within defined benefit schemes, equity allocation has fallen to an average of 60%, although this decline now appears to be slowing.

J P Morgan said: “Just under half of DB schemes (40%) have made significant asset allocation changes in the last year, mainly comprising a shift from equities to fixed income: 80% of schemes have reduced their allocation to equities and the same number have increased their allocation to bonds.”

“The key reason cited for asset allocation changes is the need to more closely match assets and liabilities (73% of schemes).”

The survey found that hedge funds and absolute returns were gaining ground in the defined contribution area.

“More esoteric sources of return such as absolute-return funds, property funds, high risk/high return funds and hedge funds are gaining interest in the DC arena, with around 20% of providers intending to offer some of these options in the next five years.”

“The move from DB to DC is clearly indisputable, and if this continues at around 12% a year, DC schemes are likely to become the main means of pension provision for new members in the very near future,” said Karen Roberton, head of defined contribution services at J P Morgan Fleming Asset Management.

She called for the issue of DC member education to be tackled “as a matter of urgency”.

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