UK pension fund performance for the year 2002 was down between 11.3% and 14.0% according to research by Russell/Mellon CAPS and the WM Company.
Whatever the exact figure, the declines signal a third consecutive year of negative performance.
Russell/Mellon CAPS estimates overall UK pension fund performance for the year ending December 2002 was -11.3%. “This is the first time since records began that UK pension funds overall have suffered three consecutive years of negative performance,” it says.
The estimates from WM, part of Deutsche Bank, are even worse. It says UK funds posted a return of –14% over the period. It says it’s the worst annual return since 1974 and completes three years of negative returns “the first such occurrence since WM began measuring performance in the mid 1970s”.
“Negative investment returns have placed considerable pressure on pension fund finances,” says WM’s head of client consultancy Eric Lambert. “Asset values have been falling while liabilities continue to rise, not least due to low bond yields and improving life expectancy. This financial strain has been exacerbated by the accelerating maturity of funds and by regulatory, Minimum Funding Requirement (MFR) and accounting standards (FRS17).”
WM says the UK equity return of a typical fund in 2002 was –22.5%, “broadly in line with the FTSE All Share index”. International equities returned around –24%.
Poor global equity market performance is blamed for the negative returns in 2002, with US and Europe ex-UK equities being the worst performers, returning –29.9% and –27.4% respectively. In the UK negative returns of –22.7% were posted, Russell Mellon CAPS says.
Fixed income sectors provided the best returns last year, posting 9.3% in the UK. The asset classes of index-linked securities, property and cash also posted positive returns.
Over the longer term, however, pensions funds still managed to achieve positive returns. Over a five-year period, funds achieved 1.8% per annum, and over 10 years, 7.5% per annum.