UK - Schemes equity weightings are "unrelated" to their funding positions, new research by Watson Wyatt reveals.
The consultant’s analysis of FTSE350 pension schemes found little correlation between well-funded schemes and those with high levels of stock market exposure.
Watson Wyatt partner John Ball said: “One might have assumed that those with above average levels of equity investment would be those that have strong funding positions.
“But this appears not to be the case. It may be that schemes with poor funding levels still feel they need to gamble on a continued upturn in the equity market to restore their funding to a satisfactory level.”
Watson Wyatt also found there was little correlation between equity investment and the maturity of the scheme or the strength of the sponsoring employer’s covenant.
“Immature schemes – those with a relatively low proportion of retired members – can be assumed to have a more capacity for taking investment risks, but there is little correlation between maturity and equity exposure,” Ball added.
“Similarly, it is surprising that there is little correlation between the sponsoring company’s capacity to absorb risk and equity exposure. Companies with large pensions schemes compared to their own size appear just as likely to have high exposure to equities as companies with small schemes.
“This begs the question as to whether scheme trustees are adequately factoring in the strength of the employer’s covenant when setting investment policy.”
The research also showed that many schemes are reducing their exposure to risk.
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