UK - The exposure to equities of many Additional Voluntary Contribution (AVC) pension funds has continued to fall over the past year, according to a survey by Watson Wyatt.
Exposure to equities in with-profits AVC funds is now nearly 30 percentage points lower than three years ago.
Watson Wyatt's AVC Survey 2005 shows the average allocation to UK and overseas equities of with-profit AVCs is down to 34.1%, from 40.4% in 2004 and 47.3% in 2003.
Equity exposure of managed unit-linked AVC funds remained fairly consistent over the same period: 79.7% in 2002, 78.7% in 2003, 81.3% in 2004 and 82.8% in this year's survey.
The trend towards reducing equity exposure under with-profits funds continues though it appears to have slowed as providers have completed the adjustment of the asset allocation of their funds to meet the current investment landscape and regulatory requirements, said Andy Parker, a senior consultant at Watson Wyatt.
However, three years ago, the asset mixes of with-profits AVCs and managed unit-linked AVCs were fairly similar. Today there is a very marked difference in allocation strategy.
Past performance information from Watson Wyatt's AVC survey shows that, based on contributions of £100 per month, the average managed unit-linked AVC has outperformed the average with-profits plan over three years though not over five or ten years,
Over three years, unit-linked funds have provided better returns as they directly reflect the actual return achieved by the underlying assets during the recent period of positive underlying growth, whereas the with-profits providers have held back some of these returns in order to replenish or reinforce their reserves, said Parker.
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