UK schemes see 7% drop in assets over last month – NAPF

UK - The National Association of Pension Funds (NAPF) has estimated that UK schemes could have lost as much as 7% of asset value in the past week’s market unrest.

Further estimates by Mercer suggested that schemes had seen liabilities increase by 11% since March on the back of the market instability.

A week-long drop in the FTSE appeared to come to an end on Tuesday, when the FTSE 100 closed above 5,100, then opening 1.8% up today at 5,231.

However, at time of writing, the market had again dropped to as low as 5,106, mirroring its lowest point since the beginning of August.

Commenting on the markets this morning, the NAPF acknowledged pension funds were “not immune” to global stock market declines, but it also stressed that UK pension funds were diversified investors.

A spokesman said: “While we have estimated that the total value of assets in all pension schemes has been reduced by 6-7% over the last month, pensions are long-term investments and are not easily unsettled by short-term volatility.”

The estimates - covering defined benefit as well as defined contribution and personal pension plans - took into account the development on global stock markets over the last month, including Monday.

The spokesman stressed further that pension funds had “lived through” this century’s earlier downturns - in 2003 and 2007, respectively - and, referring to yesterday’s close, said that stock markets could “rise as well as fall”.

Meanwhile, Divyesh Hindocha, global director of consulting for Mercer’s investment consulting business, estimated that UK funds had seen their liabilities increase by as much as 11% over the last five months.

“In the UK, since the end of March until the end of last week, effectively the liabilities will have outpaced the assets by around 11%,” he said, adding that, due to bond market fluctuations alone, liabilities had risen by about 9%, if measured using UK gilts.

He added that, over the same period, assets had likely fallen by around 2% in value, and he stressed that this decrease also took account of the decrease in schemes’ fixed income holdings.

“The consequence of that is that the funding levels have effectively gone down by about 10%,” he said, noting that they now stood at around 54%.

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