22.2.2011
By Simon Miller
UK defined benefit (DB) schemes continue to focus on derisking despite improved fund positions according to a study from London group The CityUK.
According to The Pensions Market Report, concerns over rising life expectancy pushing long-term growth liabilities, have led pension fund to continue to adopt closure of DB scheme to new members as a central strategy. Employees in open DB schemes have fallen by three quarters from 4.1m in 2000 to 1.0m in 2009. The share of UK DB private sector schemes remaining open to new members has declined to 21% in 2010 from 35% in 2006.
Pension schemes have also lowered allocation to equities - down to 42% from 75% over the past ten years. Additionally, some companies are transferring responsibility for DB pension schemes to insurance companies, with the insurance buyout market worth around £7bn in 2008 and 2009.
Costs have also been reduced with contributions to defined contribution schemes, at 9% of salary, running at less than half the 20% of salary to open DB schemes.
The continued derisking is despite rising funding positions. UK pension schemes saw recovering equity markets help turn a record £201bn deficit in DB pension schemes in 2009 into a £22bn surplus in 2010.
Globally, the total value of pension assets also rose by an estimated 8% to $31.1trn (£19.2bn) in 2010, building on an 11% upturn in 2009, but has still to recover the high of $31.9trn reached in 2007.
However, head of research at TheCityUK Duncan McKenzie pointed out that real returns have halved when compared with the long-term average.
"The real rate of return on UK pension funds was 7.6% in 2010, building on the 15.7% rise in 2009. But four years of negative returns over the past decade mean that real returns during that period have averaged only 1.7% a year, well below the long-term average real return of 4.3% a year over the past half century," McKenzie commented.
The UK, with pension assets totaling $2.5trn, remains the second largest market, accounting for 9% of total assets worldwide. UK assets are only exceeded by the dominant US market where assets of $18.1trn make up nearly two thirds of the global total.
Other stories you may find of interest:
Record pension scheme de-risking predicted for Q2 2011
Consultant Hymans Robertson predicts that Q2 2011 looks set for a record number of pension scheme de-risking.
Journey’s end for Solvency II?
Solvency II, the long-mooted new capital adequacy regime for Europe’s insurers, is nearing implementation. Graham Buck reviews its progress
