Leading fund managers are backing calls for the UK's early entry into the euro.
They believe the writing is on the wall for sterling following Labour's second successive landslide election victory. The majority insist joining the euro is both right and inevitable.
But Merrill Lynch Investment Managers global head of equities Andreas Utermann pointed out that if Britain joined the euro it would alter the risk profile of schemes which would potentially reduce overseas equity returns.
If pension plans are targeting the same returns then they need to look for increased volatility. The only way they have to do that – in addition to increasing stock-selection and risk in portfolio – is to look at the US, Japan and Pacific or the emerging markets to compensate for that loss in volatility and risk in the portfolio.
However, Scottish Equitable pensions development director Stewart Ritchie said the removal of a currency mismatch could make annuities cheaper.
He said: In practice yields would equalise somewhere in the middle. UK annuities would, other things being equal, become a little cheaper and there would be greater availability and choice for UK pension institutions to match their assets to their liabilities.
Royal London Asset Management chief executive officer Christopher Phillips estimates that three-quarters of the financial community is in favour of joining the euro.
But he said: The government must take the lead to ensure we enter on the right terms. An issue as crucial as this should never be left to drift.Phillips added: Britain has had a history in Europe of only belatedly catching up with our partners. When we finally join the euro it will be only another example of Britain eventually facing up to reality.
Deutsche Asset Management chief global economist Steven Bell said the markets are starting to expect Britain to join.
He said: You can work out from the foreign exchange markets' forward view of currency volatility what the implied probability is of us joining.
They were very low a few weeks ago - as low as 10pc for 2004. That was clearly too low – the markets are beginning to realise it’s a real possibility.
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