UK corporate pensions heading down the same rocky paths as the banks

Articles

UK corporate pensions heading down the same rocky paths as the banks

Signs that all is not well in the world of pensions is news that the moderate surpluses recorded in the summer of 2008 are now slipping into deficit, with figures of around two hundred billion being bandied around.

Financial experts estimated that the pension fund problems emanated from the fact that the pension funds were too ready to continue to take their chances on the stock market instead of seeking the safety and security of government bonds. The disturbing fact that pension funds still retain forty percent of their holdings in equities means that their fall in value will continue until share values begin to level out over the next year or so. Statistics now show that equity investments are down almost thirty percent over the last decade, whilst returns on government bonds over the same period are up eighty percent.

Pension fund managers appeared to have taken a line over the last few years that if they continued to invest in shares, they would be certain to make a comeback. The closest comparison would be to a gambler chasing losses by betting more and more money on the same number. With each spin of the wheel, the chances of making a recovery steadily decreasing.

Another "ticking bomb" for the UK pension funds is the increasing number of executives "parachuting" out of the job market who want to take some advantage of the pension funds they have accrued to make their early retirement as comfortable as possible. Word has reached the street that the pension funds may have difficulties meeting their commitments and many have decided to cash in as many of their funds as early as possible and the if the trend continues there is a genuine fear that threw will be a shortfall

With the UK now officially in recession, companies who have handled their own pension funds or have placed them through a pension fund manager, will need to take into account that they are obliged by law to meet their pension fund commitments. .

If, as it appears certain, equity prices remain on a downturn, soon to be announced results from the UK's biggest defined benefit pension funds, expected to be around the eight hundred billion pounds as recently as September 2008, may look a lot differently when the next set of results are announced in March 2009.