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| The
first choice for people
in pensions |
| Deficits
rocket to £73bn
By Sophie Baker |
| Equities
have slid down the popularity scale for pension funds as deficits
soar to £73bn at the end of June 2009, says Aon. The company’s Aon200 Index has recorded an 80 per cent rise in aggregate accounting deficit of the 200 largest privately sponsored pension schemes, a jump of £33bn from May 2009. This is the highest deficit since January 2006. The drop has been blamed on falling corporate bond yields, although pressure has been heaped on trustees and companies to move away from high risk equities in an effort to minimise damage. Aon has also highlighted changes to IAS19, due to be confirmed later in 2009, which will force the return on pension scheme assets to be noted immediately though the profit and loss charge. Volatility in the equity markets, however, are likely to pose problems for those schemes that hold a high proportion of equity assets when it comes to the new rules. The Pension Protection Fund’s (PPF) proposals that the levy for an individual scheme should reflect its investment strategy could, Aon said, force trustees to withdraw from equities in order to reduce this charge. Sarah Abraham, consultant and actuary at Aon Consulting, said: “Whilst market volatility coupled with changes to legislation may increase the pressure on trustees to move out of equities, trustees and sponsors must think carefully before eliminating too much of their equity exposure. It should not be forgotten that these assets still have significant advantages for pension schemes. Despite their inherent volatility, the expected return on equities is higher than on fixed interest assets, meaning that over the long-term the risk should be ‘rewarded’. Furthermore, in the long-term, equities should provide an inflation linked return that is likely to reflect the benefits promised by the scheme better than a fixed interest investment.” She added that Aon expects diversified growth funds and other alternatives to become more popular as they are a good compromise for trustees. “These funds incorporate some equity investment but the volatility of the portfolio is reduced by introducing assets which are expected to behave in a different way to equities given the same market pressures.” - Pensions Age July 2009
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