UK - Pension funds would be over £40bn richer if allocations to property were at their 1980s peak, new research shows.
Research carried out by London Business School and Aberdeen Property Investors shows that if pension funds had a 20% allocation to property, instead of the current 4% average in the past three years, they would be approximately £44bn better off.
Pension funds’ property allocation was as high as 20% during the 1980s, but rapidly fell after market crashes. Trustees have been reluctant to increase allocations despite several years of consistent outperformance relative to equities and bonds.
API chief executive David Hunter argues it is time for schemes to rethink their attitude to property.
He said: “Managers didn’t think that the property market would remain so strong.
“Unfortunately, pension funds decided to switch from the property market at almost exactly the same time that the market fell. It is likely, though, that next year will start to see the switch.”
A buyout tool which provides schemes with up-to-date pricing and comparisons between insurers has been launched by JLT Employee Benefits.
The DB white paper sets out plans to review the funding regime, with 'prudent' and 'appropriate' possibly redefined. But James Phillips asks if this could this signal a return to an MFR-like approach?
The trustees of GKN's pension schemes have agreed a package of mitigation measures that would improve funding to a "more prudent level" if Melrose's offer is accepted by shareholders next week.
While the new powers are welcome, most respondents doubt it will make a difference to the outcomes for members, Pensions Buzz respondents say.