UK - In a review of its investment strategy, the £2.3bn Boots Pension Scheme has moved all its assets from equities into bonds.
Scheme chairman John Watson said the move results from a number of factors: the continuing fall in inflation and interest rates; a declining UK stock market; the abolishment of the Minimum Funding Requirement (MFR); and the introduction of FRS 17 legislation. These factors prompted a review of the investment strategy in order to achieve a more conservative asset match for the scheme’s pension liabilities.
Over a period of 15 months to July 2001, all the equities in the fund have been sold and all assets moved into long-dated sterling bonds.
Watson said the restructuring of the scheme’s assets is good for members and significantly increases their security. “Our aim is to ensure that the value of fund assets is always enough to pay all pensions, regardless of movements in financial markets,” he said.
Watson said in the event of any movements in financial markets, the value of assets in equities would not ensure enough to pay all pensions. He added that the management charges and dealing costs, following the switch to bonds, have been reduced to £0.25m per annum from about £10m per annum.
Watson explained that the matched bonds move fell closely in line with the value of pension liabilities, drastically reducing the risk of a deficit.
Consultants William M Mercer gave independent actuarial and investment advice to the trustees on this change in strategy. Legal & General Investment Management sold the old assets and bought the new bonds on behalf of the fund. The scheme sold equities and bought long-dated AAA sovereign bonds, including 25% inflation-linked, from such issuers as the World Bank and European Investment Bank.
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