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The majority
of pension fund trustees are failing their members by “following
the herd” when it comes to investment strategy and not taking
calculated risks, according to Ben Shaw, development director at
the Occupational Pension Trust (OPT).
Shaw has told Pensions Age that schemes need to properly diversify
if they are to ride out the stormy equity markets and avoid further
deficits.
He believes that the typical UK pension scheme’s investment
strategy of a 50:50 ratio of equities and bonds is patently not
a sensible strategy in the current climate, but cannot see scheme
trustees moving away from the status quo and branching out into
other options.
“It’s a really odd situation we’ve got that trustees
probably aren’t doing what’s in the best interest of
their members because of the risk that it exposes them to,”
said Shaw.
Apart from the fear of being held to account for a failed diversification
plan, trustees have also been held back somewhat by the FRS17 accounting
rule – the ruling forcing every company to disclose their
deficits based on a comparison to an AA bond yield - in his opinion.
As a result, trustees have invested a large proportion of assets
into bonds.
Shaw advises more adventurous trustees and consultants to look at
structured products as opportunities for investment. “There
are a lot on the market that are being offloaded cheaply by banks.
I’d say to pension schemes look at these products, because
while some are toxic, some are a real bargain. Certainly there are
a lot of these structured products that are very bond-like, so you
could allocate some of your existing bond portfolio to structured
products and still have them classed by your actuaries as bonds.”
However, Shaw is not convinced that trustees will risk investing
in these unknown areas. He thinks it comes down to trustee education,
and the amount of responsibility they are carrying by in effect
trying to secure a pensioner’s retirement. “They’re
being asked to take this huge risk onto their shoulders –
no wonder they’re very risk averse.
They do whatever the others are going so nobody can turn around
and blame them.”
- Pensions Age
August 2008
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