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UK schemes in “long march” into bonds - Barclays

UK – Barclays Capital says possible new rules about pension fund transparency means further pension fund demand for bonds as funds begin “their long march out of equity into fixed income”.

The comments come as the Society of Pension Consultants says the UK’s occupational pension sector is “hanging in the balance”.

Following a new consultation by the Financial Services Authority - and a recent critical report presented to the actuarial association, Barclays Capital said: “At the margin, the FSA’s ‘five year plan’ might reduce the bid for longs as some funds are offered some relief from meeting their FRS17 liability.

“But if the actuaries have their way, pension funds are going to have to be more transparent about fund liabilities and move to a liability amortising investment regime.”

The firm – sister firm to pension fund manager Barclays Global Investors - said in a research note: “We think that this equates to further buying pressure for long conventional and index-linked paper and if we are right in our overall belief that pension funds are now beginning their long march out of equity into fixed income, we can expect long gilt and index-linked auctions to continue to be strongly bid by real money accounts for the foreseeable future.”

Meanwhile, the Society of Pension Consultants has said workplace pensions are “hanging in the balance”.

“The occupational pensions system will find itself teetering on the edge of a steep downward slope, unless something is done to give both employers and employees renewed faith in company pension schemes,” said SPC president Robert Birmingham.

“This means above all addressing immediately the concerns of employers, who cannot wait until next year, but have to take difficult decisions now affecting the solvency of their pensions schemes, the submission of their accounts, their ratings and their share prices.

“Fundamental changes have to be made to the entire occupational pensions environment. It has to be made simpler and less tightly regulated, and employers have to feel free to discuss schemes sensibly with employees. An extended debate over compulsion isn't enough.”

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