mast image

Impact Investing

IPE special report May 2018

Sections

UK schemes want to cut equities - Watson Wyatt

UK – Watson Wyatt says many UK pension schemes are looking to cut their exposure to equities – but are being held back by market conditions.

The comments come as Watson says large UK corporates almost doubled their pension contributions in 2003.

“According to Watson Wyatt, many pension schemes are looking to reducing their exposure to equities over the long-term, but have been held back from doing so due to current market conditions,” the consulting firm said in a statement.

“A few pension schemes have used derivatives to reduce exposure to equities in the interim while waiting for the right investment conditions to make tactical changes.” It did not name the schemes.

UK schemes’ equity allocation remained broadly stable at around 60%. “This may however mask an underlying reduction in the proportion allocated to equities coupled with the relatively stronger performance of equities over the year.”

Watson Wyatt, which advises more than half of the 100 largest UK corporate pension schemes, said it looked at the contributions made to the defined benefit pension schemes of companies in the FTSE 100 index.

It found that, on average, contributions from employers had risen by 95%. “Some 75% of these FTSE 100 companies had increased pension contributions, in some cases quite substantially.”

The research covered the pension schemes of 40 of the 50 FTSE 100 companies that reported on December 31 2003.

It found that - despite extra contributions and higher equity markets - pension scheme deficits have hardly changed at around 60 billion pounds (91.4 billion euros) for the FTSE 100, under the FRS17 reporting standard.

"This is because pension liabilities also increased due to the reduction in bond yields during 2003 which increase the net present value of liabilities, as well as increased inflation expectations in the gilts market which increase the expected pay-outs," said Watson partner Chinu Patel.

The firm said there was an increase “in excess of eight percent” in the pension liabilities of FTSE 100 companies.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here