UK - Despite recent strong investment performance, UK pension plans still face funding troubles as 80% of them plan to make significant alterations to their asset class mix over the next three years, Greenwich Associates has claimed.
Average funding ratios for UK corporate pension plans declined to 91% in 2006 from 92% in 2005, while local authorities saw funding ratios of their pension plans fall from 78% to 77%, according to research carried out by Greenwich.
“These do not seem like significant decreases, but at a time in which investment performance has been robust, assets are growing and plan sponsors are making significant contributions, you would expect movement in the opposite direction,” said Greenwich Associates consultant Chris McNickle.
The research suggested UK pension plans were confronting several strategic issues, the most important of which was determining the long-term viability of maintaining and funding traditional final salary plans.
“Integral to the question of final salary viability is the issue of how to maintain appropriate final salary funding ratios - a task made much more complicated for corporations by the implementation of mark-to-market accounting rules,” explains Greenwich Associates consultant Rodger Smith.
Greenwich Associates said UK corporate pension plans would like to increase the percentage of their portfolio devoted to fixed interest.
The study also showed that 10% of the plan sponsors planned to start using some form of liability driven investment solution.
The Greenwich Associates’ 2006 UK investment management research study included 412 professionals at the largest UK pension funds.
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