UK - Schemes must not be fooled into a wholesale move to bonds despite assurances from some consultants, Horwath Clark Whitehill's annual pension forum heard.
The accounting firm’s forum – held in association with IPN’s sister publication Professional Pensions – featured proponents from both sides of the “equities v bonds”.
Russell Investment Group director of consulting John Gillies said there was a “considerable mythology among UK pension funds when it comes to equities”.
He added: “People need to understand that changing investment strategies overnight and putting everything in bonds is very rarely the best option.”
Integrating the policy of the company and the pension fund was seen as a key stumbling block and Gillies argued the “all bond” solution – despite being theoretically sound – was often not viable in practice.
He said a strategy incorporating bonds and equities was the “healthy” approach.
But independent pensions consultant John Ralfe, who was head of corporate finance at Boots when its scheme made a wholesale switch to bonds, urged pension funds to turn away from the traditional “cult of the equity” – popular since the 1950s.
He said things were now less straightforward and pension assets and liabilities needed to be matched by holding bonds over equities, with the firm backing the fund through share buyback.
Ralfe blamed “conventional thinking” for ignoring the changed nature of defined benefit.
Trustees were urged to protect guaranteed pensions with bonds and not increase the risk by seeking outperformance through equities.
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