UK – Falling equity markets have slashed £31bn (e50bn) from the value of UK pension funds in the first three months of this year leaving defined contribution pension scheme members who are about to retire facing a sharp fall in benefits, according to WM, the performance measurement consultancy.

The latest WM figures for the first quarter, 2001 show that the average UK scheme has lost around 6% of its value since January.

“The reduction in value is unlikely to have any effect on the members of final salary defined benefit schemes. In these schemes, benefits are underwritten by the employer and funded in a way that minimises the effects of short-term market turbulence,” says Peter Warrington, executive director at the WM Company.
“However, members of defined contribution schemes who have just retired, or are about to, may have seen their investments suffer a steep decline over the past year,” he adds.

The major reasons for the decline of equity investments, over the first quarter of 2001, have been the poor returns of technology and telecom stocks.
In the UK, these areas have lost almost 70% and 50% respectively since March 2000, says WM.
“The fall in these sectors has undermined market confidence, reducing the value of many more traditional stocks. This is the key theme in the 8.4% fall in the UK equity market,” says Warrington.

Apart from bad results in the domestic market, UK pension funds have also had a rough ride abroad.
The WM figures show that European equity markets fell by 12% during the quarter, while North American stock markets lost 8% of their value and Japanese shares dropped a further 5%.
Despite a bright looking January, Pacific region markets, ex Japan, managed to close the quarter down 3.7%.

Other investment vehicles fared slightly better, at just above zero, says the consultancy.
UK bonds, for example, returned 0.8% over the quarter – albeit less than the basic return on cash, while property returns were just under 1.5% over the first three months of the year.

According to WM’s estimated figures, covering 1,600 UK funds with assets over £500bn, the average British pension fund is 47.1% invested in UK equities, 5.6% in North American shares, 8.9% in European stocks, 3.6% in Japanese equity and 2.9% in other Pacific stocks.
Domestic bonds currently comprise 10.4% of UK pension fund assets, while 3.8% is invested in overseas bonds.
Property investment has risen to 5.4%, from 4.5% a year ago.