UK pensions remain healthy despite dropping £150bn
UK- The UK’s pension fund industry is in a good state and will continue to grow faster than the economy according to the 2002 Pension Fund Indicators report published by UBS Global Asset Management.
Speaking at the launch of the annual pensions survey, head of UK equities Andrew Maclaren said the UK media had overstated the problems faced by the pension fund industry. “When you read foreign reports, many are envious of UK schemes.”
According to figures in the report, the value of occupational pension fund assets has dropped £150bn in the last two years. UBS estimates that the occupational industry is likely to grow from £700bn to £1trn between now and 2011. Private pensions are expected to grow from £300bn to £650bn over the same period.
The report says that, despite defined contribution and hybrid schemes becoming more widespread, defined benefit schemes’ assets will continue to dominate the overall total for at least a decade.
“Accumulated assets in such schemes account for about 80% of occupational scheme assets and they will need to continue to grow to meet the benefits accumulating to active members and promised to deferred pensioners, many of whom are decades away from retirement,” it says.
At the launch, Maclaren said labelling DB schemes as good and DC as bad was an oversimplification and that the issues of contribution levels and investment risk remain unclear.
“You can argue that some employees are bearing investment risk in DB schemes although this is veiled behind the promise of a final salary,” he said.
He added that retirement saving will increase gradually as people are beginning to realise that, if employers are not making generous contributions, they are going to have to make them themselves.
Maclaren added that the government’s stakeholder initiative to encourage people to save more had failed.
The report says the proportion of assets held in UK equities will continue to decline and bond holdings will continue to rise. At present, the level of investment in UK bonds remains modest, at around 17% of total assets.
Speaking at the Launch, CEO Paul Yates said that although the inclination for UK funds is to invest more in Sterling bonds, there is a shortage of them. A 17% share represents total assets of £117bn out of an available £250bn in investment grade sterling bonds.
The report also suggests equities remain expensive but strategically more attractive for defined contribution schemes than for defined benefit schemes.