The provisional net investment of pension funds in gilts last year was the largest since 1963, the Office for National Statistics has reported.
In the ONS Companies, Pension Funds and Trusts: Quarter 4 investment report, the body found that market participants, particularly pension funds have been switching back to gilts in recent years, possibly in an attempt to avoid the “relative volatility” of equity markets.
In 2016, the provisional estimate of net investment of pension fund in gilts was £31bn, the highest recorded figure since the ONS begun its report series in 1963.
The report also found that in Q4 last year, there was a net disinvestment of £5bn in short-term assets. While the five-year quarterly average for this series is a net investment of £3bn, the net disinvestment was attributed mainly by disinvestment in short-term assets by pension funds of £4bn.
In addition, net disinvestment by pension funds of £9bn was the largest for the ONS series since Q4 in 2008 of £18bn.
Furthermore, it was noted that in Q4 2016, net disinvestment of £4bn by pension funds in overseas mutual fund investments was the largest since 1996.
A trend was found among pension funds making one-off “special contributions” in Q1 of a given year (since 2012) in order to reduce fund deficits. As a result, net contributions were generally higher in this quarter than the following three. The ONS suggested that a possible reason for this could be that DB schemes compiling their end of year accounts are better places to assess the level of additional input necessary to address their deficits.
In Q1 2016, pension schemes made special contributions of £9bn.