Scheme switch to equities a “bad investment decision”

She said it was a misconception that bonds offered pension schemes less risk compared to equities – and warned switching due to market instability would be a "bad investment decision".

Altmann said as most pension schemes were in deficit, a switch to bonds would mean outperforming its liabilities in order to be able to pay out pensions.

She warned: "It would only reduce short term volatility. But things will get worse, and sponsors will have to dip into their pockets to make up the shortfall. Equities outperform bonds over the long term."

Altmann said it was especially important for smaller schemes to stay in equities and diversify portfolios as they had smaller asset bases compared to larger schemes.

She said one way in which smaller schemes could invest in a variety of funds was to pool assets together with larger schemes.

Altmann explained: "This would be instead of paying fund managers. It is worth a think. It is not something we have done before."

Aon Consulting agreed – noting that most pension schemes had survived the credit crunch this far due to the structure of long-term investment strategies.

Investment consultant and actuary Daniel Peters said the firm was not advising its pension scheme clients to withdraw its portfolios from equities.

He said: "The important question is, what is your timeframe? Pension schemes are not overly concerned with short-term volatility. So there is not a direct need to diversify. But the answer really depends on the company and its liabilities."