Defined benefit (DB) schemes further upped their allocation to bonds in the year to March 2017, continuing a four-year trend, analysis by the Pension Protection Fund (PPF) has found.
In its Purple Book 2017, published today, the lifeboat fund said weighted bond allocations - including gilts, inflation-linked and corporate bonds - hit 55.7% in March 2017, up from 51.3% in 2016, and almost double the 28.3% recorded in March 2006.
Conversely, equity allocations have plummeted over the same period, falling from 61.1% in 2006 to 29% in March this year. And within this, allocations to UK equities have similarly dropped from 22.4% to 20.5% in 2016 and 2017 respectively, meaning just 6% of the weighted average portfolio is invested in domestic equities.
The figures are based on an analysis of 5,588 scheme returns - or 98.5% of the PPF universe - with a weighted average calculated by dividing the combined total allocation to an asset class by the aggregate total value of assets across all schemes.
Launching the report, PPF chief risk officer Hans den Boer said the change in allocation reflects a maturing universe.
"In the case of equities, where 10 years ago it was over 60%, it has more than halved now to less than 30%," he said. "On the bond side, we've seen increases over that 10/11-year period from below 30% to close to 60% now.
"What we see is the best funded schemes will have the greatest proportion of their assets in bonds. Likewise, as a scheme matures and its membership gets older, we also see their allocation to bonds is increasing and equities is declining.
"The gilts, after some decreases, are now on a steady upward path. This shows a greater level of hedging [using] more gilts to offset the risks of the liabilities and, especially with the inflation-linked bonds, to offset the liabilities which are normally inflation-linked."
The use of hedge funds has also continued to creep higher, edging from 6.6% last year to 6.7% in March, but more than four times its size in 2006 when the allocation was 1.5%.
Hargreaves Lansdown senior pension analyst Nathan Long said this investment strategy may be hindering employers' contributions to their defined contribution schemes, stating "the whole system is out of kilter".
"Of all investors in the UK, final salary schemes should be able to take the most patient, long-term view of asset allocation and investment risk, yet they have become increasingly short-term and conservative in their strategy," he said.
"Lower investment returns mean higher contributions are required to make up the shortfall, so employers are having to pour more and more money into DB pensions. This comes at the expense of the auto-enrolment generation who desperately need higher levels of contribution directed into their modern day pensions; the reality is legacy pensions could be stifling the future retirements of today's workers."
Long's comments echo sentiments made this week by the Institute of Chartered Accountants of Scotland president Brian Souter, who said this investment approach was storing up problems for future generations.
The Purple Book also revealed that the average length of scheme funding plans, within tranche 10, was 7.5 years, one year shorter than when the same group was reviewed three years ago.
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