UK - Pension schemes are over-reliant on equities and can no longer expect them to outperform bonds in the long-term.
Analyst Ned Cazalet said schemes were still “too stuffed with equities” – particularly DB plans which guaranteed benefits.
Cazalet – speaking at the Centre for the Study of Financial Innovation conference – claimed trustees needed to be aware that the asset classes had changed.
He said: “Equities have become much more volatile and the premium versus bond returns has been falling.
“Maybe equities can no longer be counted on to outperform bonds – which could have enormous implications.”
Aberdeen Asset Management head of global strategy Michael Karagianis agreed that investors were too reliant on equities and urged them to diversify their portfolio.
He said: “Pension funds attribute too much to equity and don’t appreciate the risk.
“They are under-represented in property, non-UK investments, emerging market assets, corporate debt and even high-yield debt.”
But other speakers warned against a mass move into bonds.
Former Salomon Smith Barney’s European bond market expert Graham Bishop warned that trustees might get the move into bonds wrong – as they did with equities.
“The worst possible outcome for the pensions industry would be for it to shift to fixed rate instruments and then have the government go to higher inflation – for which there is considerable precedent.”
Concern was also raised that a shift from equities to bonds would mean a “continued drag” on equity markets.
Industry analyst, and former Boots head of corporate finance, John Ralfe said many companies would have to increase their pension contributions to compensate for the deficits that would arise from an industry shift to bonds.
The Pensions Regulator (TPR) has set out plans to use "new regulatory initiatives" with over 1,000 schemes as it aims to tighten its regulatory grip and boost member outcomes.
HM Revenue and Customs (HMRC) has announced it is delaying the provision of data that will enable pension schemes to confirm the guaranteed minimum pension (GMP) benefits to pay to members until the end of the year.
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