UK - The pace of change in the UK pensions market over the last 30 years has been more dramatic than in any other major institutional market, claims Greenwich Associates, the Greenwich, Connecticut based research and consulting firm.
Of particular note in the UK, says Greenwich, is the shift by schemes in their asset allocation strategies out of domestic equities, greater employment of specialist managers and the move to defined contribution (DC) schemes.
Greenwich suggests that whilst some trends, such as the shift to specialised mandates, were already underway, others, such as the move to customised benchmarks have been fuelled by the Myners review. The need for customised benchmarks is underscored in the Myners review, notes Greenwich, adding that pension funds should have benchmarks that are relevant to their situation rather than their market sector average or peer groups with different liability profiles.
Greenwich claims that the number of UK pension funds opting for specialist managers has almost doubled since 1998, from 40% then to 75% today. The last year alone has seen the figure increase by 13%. Furthermore, the trend doesn’t only concern big corporate funds. Among smaller funds of assets under £500m (€812m), the use of specialist managers over the same period actually doubled from 35% to 70%, and for local authority schemes, usage increased from 35% to 67%.
In terms of pension funds’ investments in domestic equities, Greenwich notes that passive holdings have remained steady at around 14% since 1996, whereas active investments have dropped from 40% to 33% over the same period. Whilst 47% expected their active domestic equity investments to be even lower by 2003, another 39% said they would also start seeing a decline in their passive element.
Greenwich suggests that fixed income is the asset class attracting most of these divested assets, though there has been a small shift to overseas equities.
Among large UK corporations, 39% now provide DC plans, an increase of 14% since 1998.
A further 17% said they intended to add DC schemes in the near future.
However, Greenwich points out that only 9% of average pension fund assets are invested in DC schemes, though this figure is expected to triple within ten years.
The Greenwich research is based on interviews conducted with 425 representatives from the UK’s largest tax-exempt pension funds. Topics covered included asset allocation, investment structures, DC plans, compensation and manager assessment.