Schemes continue move out of equities

Pension funds have continued to cut back their equity exposure while increasing allocations to fixed income and hedge funds, new research shows.

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Pension funds have continued to cut back their equity exposure while increasing allocations to fixed income and hedge funds, new research shows.

Pension funds have continued to cut back their equity exposure while increasing allocations to fixed income and hedge funds, new research shows.

The seventh edition of the Purple Book, published in November by the Pension Protection Fund and The Pensions Regulator and featuring data from 6,316 schemes, found equity allocations fell to 38.5% in 2012, down from 41.1% in 2011.

Meanwhile, the proportion of gilts and fixed interest rose from 40.1% to 43.2% over the year and exposure to hedge funds almost doubled from 2.4% to 4.5%.

Within equities, the Purple Book found the overseas proportion of total holdings rose from 57.2% in 2011 to 60% in 2012, with the UK proportion falling from 38% to 33.9%.

The allocation to corporate fixed interest securities rose from 44.3% in 2011 to 44.8% in 2012, while the proportion of gilts fell from 19.6% to 17.7% over the same period.

The Purple Book shows smaller schemes tend to have a higher allocation to UK equities and a smaller allocation to overseas equities along with a higher allocation to government fixed interest and a smaller allocation to index-linked securities.

The data also shows assets totalled £1,026.8bn at 31 March 2012, with liabilities standing at £1,231bn on an s179 basis and £1,702.6bn on a full buy out basis. The aggregate s179 funding position of the schemes was a deficit of £204.2bn compared with £1.2bn a year earlier, while the s179 funding ratio fell from 100% to 83%.

This is the seventh edition of the publication which monitors the risks faced by predominantly private sector defined benefit pension schemes throughout the UK. Movements in these risks can have an impact on the PPF’s aim to be financially self-sufficient by 2030.

The Pensions Regulator chief executive Bill Galvin said: “This publication gives us an important insight into the state of play for DB schemes and the risks they face. “We appreciate that the current economic situation presents a continuing challenge to trustees – low interest rates and low gilt yields have contributed to increased liabilities and deficits for many DB schemes.

“However, rising deficits do not necessarily result in higher contributions for sponsors. The UK regime offers flexibility, including the option to increase recovery plan lengths or provide non-cash guarantees. “We are also engaging proactively with a number of schemes currently working through their valuations.”

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