Smaller pension funds endured a difficult 2016 as their funding levels shrank almost five times greater than those recorded by their larger peers, Goldman Sachs Asset Management has discovered.
The research shows that average funding levels in the FTSE 350 fell by just 1.5% during the year.
However, a look behind the headline figure shows a huge disparity in the performance of larger and smaller pension funds.
Defined benefit (DB) schemes with less than £500m under management saw their funding level drop by 6.6% on average, compared to just 1.4% by the larger schemes analysed by the asset manager.
The research highlights the challenge that schemes with limited assets face in managing risk while operating sophisticated investment strategies.
The funding gap between schemes either side of the £500m mark was less pronounced in the previous two years. In 2016, however, interest rates were cut to near zero, an event that had a greater impact on smaller schemes.
The asset manager’s annual review of FTSE 350 DB pension schemes counted that 47% of funds are worth less than £500m. The problem is worse when examining the issue beyond listed companies with 85% of UK schemes falling into this category.
Goldman Sachs Asset Management’s head of UK and Irish institutional business, David Curtis, said: “Trustees of all schemes, regardless of size, face the same risk management challenges in meeting their long-term funding objectives.
“Our study highlights significant dispersions in outcomes at a time when the FCA is concurrently scrutinising the provision, value and regulation of strategic advice,” he added.
