UK - Pension funds in the UK have sharply reduced their exposure to UK equity over the last 12 months, with a new survey by the National Association of Pension Funds (NAPF) finding that allocation to the asset class fell by a third - with emerging market equity the only equity asset to gain favour year on year.
The NAPF’s annual survey also found further evidence of defined benefit (DB) scheme closures, with almost a quarter of all funds surveyed now no longer open to future accrual, a 6 percentage point increase over 2010.
The organisation’s chief executive Joanne Segars said there was a “seismic shift” occurring within the pensions industry, with further change “certain”.
“Final salary deals are coming off the table and are either being watered-down or replaced altogether,” she continued, with survey results showing that 11% of funds said they would retain their existing DB fund, but alter conditions to make benefits less generous.
Examining the asset allocations of the country’s DB funds - covering both local government pension schemes (LGPS) and private sector funds - showed a noticeable decline in exposure to equity over the previous year.
While exposure has been falling in each of the past six surveys, standing at 60% in 2006 compared with the current 42%, UK equity suffered the brunt of the loss, accounting for only 14.3% of invested assets, down by 6 percentage points year on year.
A decline of between 1-2% occurred across all other types of equity, including European, North American and Japanese, with only emerging market exposure rising by 0.7 percentage points to 5.3% of total investments.
Real estate investment grew for the third consecutive year to account for 7.8% of assets for the 68% of DB schemes that had exposure to the asset class, while the number of funds investing in infrastructure remained constant at 14%, with the allocation falling slightly to 2.7%, down from the 3.8% devoted to such projects in 2009.
Examining defined contribution schemes more closely, the NAPF said assets surveyed accounted for £8bn in pension savings, with those schemes seeing an increased number of pot choices for members.
“Looking back over the past five years, the number of fund choices for both trust and contract-based schemes has increased,” the survey said. “In 2006, the median number of funds to choose from was 10; this had risen to 14 in 2011.”
However, Segars was positive about the future of DC provision in the UK, saying that these alternatives to DB were proving “a good one”.
“It’s encouraging to see that, despite the harsh economic climate, payments into defined contribution pensions by staff and their employers have remained stable,” she said.
“Whatever the type of pension, the main thing is to get more people saving. The UK simply isn’t salting enough away for its old age.”
The survey, conducted in July and August and covering around 1,500 schemes, also found that average funding levels had recovered - with the Pension Protection Fund funding ratio of 92% found across the DB schemes.
However, this figure is likely to have fallen since, with the PPF 7800 index funding ratio most recently falling to 81.9%.