UK – The current period of increased scrutiny and funding shortfalls may in future be seen as a period of “catharsis and renewal” in the UK pensions industry, says UBS Global Asset Management.
“Increased scrutiny, significant funding shortfalls and public distrust have focused industry and government minds,” UBS said in its Pension Fund Indicators report for 2004.
“Some recent legislation has worrying consequences but the pensions industry as a whole is robust. Employers, trustees, investment managers and consultants alike are working hard together to build a sustainable framework for the long term.”
It said: “If these combined forces result in a deeper understanding of the real investment needs of individual pension schemes and in new, creative investment solutions, we may well look back on this time as one of catharsis and renewal for British pensions.”
The 74-page report argued that pension assets as a whole will grow faster than the UK economy over the long term, with total pension assets rising to just under 1.6 trillion pounds (2.4 trillion euros) in 2013, from just under a trillion pounds at the end of 2003.
The report also said that the continued focus on pension funds’ fundamental asset allocation would accelerate the trend to scheme-specific benchmarks.
It added: “Non-traditional investment solutions will become increasingly common as pension schemes seek to focus on the nature of their liabilities rather than comparisons with indices and peer groups.”
“Trustees will increasingly seek investments that more directly address their liabilities,” it added.
The report also suggested that the appetite for hedge funds would increase, from the current base of under around one percent.
“We expect that, barring a major scandal or fund collapse, investors’ appetite for hedge funds will increase. Nevertheless, investors will rightly remain wary of this lightly-regulated and notoriously opaque and secretive industry; particularly given the relatively high level of fees involved.”
Also, it saw no evidence to support the contention that schemes with trustee structures were inferior to those with ‘professional’ governance structures.