UK – More than a third of the UK’s major companies are considering increasing their pension funds exposure to fixed income following the introduction of the FRS17 accounting standard last year, according to the initial results of a survey by Gartmore Investment Management.

The survey of finance directors of 100 major UK companies sought to gauge the impact of FRS17 on pension investments.

According to Gartmore, over 35% of respondents say they are considering the move to corporate bonds since FRS17 stipulates that a company’s pension fund liabilities should be valued using the yield on ‘AA’ rated corporate bonds.
Gartmore believes that this can lead to share price volatility in equity portfolios, as feared by over 40% of respondents, which is why over 35% admitted that they were rethinking their asset allocation strategies.

Paul Grainger, manager of Gartmore’s UK gilt and fixed interest fund, comments: “This FRS17 will lead to a continuation of the trend seen in recent years for pension funds to increase their investments in non-government debt. Sterling corporate bonds have performed well over recent periods whilst yields are attractive relative to gilts.”