UK - ABN Amro, which last week launched a pension advisory unit, says both pension fund trustees and consultants are “ill-informed in investment matters”.
“Experience has taught us that the trustees of pension schemes were ill-informed in investment matters,” the Dutch-based bank said in a research note. “It would also seem the consultants the trustees turned to for advice were just as ill-informed.”
“Clearly for scheme specific rules to work those making investment decisions must be better informed.”
The comments come in a 71-page note on pension funding and investments. The report argues that pension schemes would be better off switching from equities to bonds – though it says such a move is not without difficulties.
“There can be little doubt that bonds are a better hedge for pension liabilities than equities,” the report states. “It is time for companies to start moving away from equities as a primary source of pension funding,” the report’s author, Alistair McCreadie, said in a statement.
The report added that the notion that equities are used because the asset class lowers the cost of pension provision and may create value for shareholders is “illusory”.
The problems of shifting to bonds included the loss of possible excess returns from equities, the difficult timing of such a tactical shift, the high current cost of bonds and the lack of long duration bonds to match pension liabilities.
The note added: “We believe equities have a role to play, but this should be less influential in future as pension funds redress the risk/reward balance and opt for less risk and more certainty that pension funds can meet their liabilities.”
It also says there are ‘myths’ about the pension funding crisis, such as when as equities rise and interest rates go up, so deficits fall. It also said that closing pension schemes does not close out funding risk.
Last week the bank announced the launch of a new Life & Pensions Advisory group – and the hire of Lane Clark & Peacock’s Francis Fernandes and Watson Wyatt’s Keith Jecks in senior roles.