UK - Pension funds should learn the virtues of simplicity from Boots pension scheme's switch from equities to bonds, accountancy giant PricewaterhouseCoopers claims.
PwC says the scheme now has a mission statement that declares its aim as to pay all pensions, regardless of movements in financial markets.
PwC partner John Shuttleworth said: “For an investor with pension liabilities, equities’ risk-adjusted return is the same as that on a long bond.”
He added: “For shareholders, equities in the pension fund add to the business’s leverage. Worse still, contributions are almost guaranteed to go up when times are bad.”
Shuttleworth has further applauded Boots move to secure its liabilities by making two 15-year £100m bond swaps with investment banks that guarantee inflation linked returns.
The logic of securing its pension asset and liabilities in such fashion, he said, meant that Boots could concentrate on its retail business.
He concluded: “Boots has no competitive advantage in asset management.”
By David Rowley
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