Newspaper article The Evening Standard (London, England)

Switch That's Bad News for Shares; City Comment

Newspaper article The Evening Standard (London, England)

Switch That's Bad News for Shares; City Comment

Article excerpt


IT WAS reported on Christmas Eve - so not a lot of people noticed - that Britannic Assurance had switched its entire employee pension scheme from equities into bonds, a move reminiscent of that by Boots a few years ago.

This time last year, Britannic had 67% of its [pounds sterling]1.1 billion scheme assets invested in British and foreign shares. Today all those equities, worth [pounds sterling]757 million, have been sold.

The fund is now 85% invested in Government and corporate bonds and 15% in property.

It is a significant move on several counts. First, the business of insurance companies is the management of risk, so one would expect an insurer to be red hot on the issue of risk in its pension fund in a way, perhaps, that even now mainstream companies are not.

The impact on others is different too. When Boots went into gilts it was possible to dismiss it as an aberration-When an insurance company takes the same decision it is harder to ignore. It is also significant the Britannic scheme was fully funded.

So it means the trustees and/or the sponsoring company were no longer prepared to take a bet on equities outperforming bonds in the years to come.

Instead, they preferred to lock in its surplus and eliminate the risk of underfunding in future.

Yet the move is relatively unusual.

Latest available Government statistics show that, in the third quarter of last year, pension funds were net sellers of [pounds sterling]1 billion of equities, which sounds a lot but in the context of their [pounds sterling]700 billion of assets is not wildly significant.

More confusingly, it is also at odds with survey evidence of investment intentions which consistently suggests pension funds plan to reduce the proportion of equities they hold over the next couple of years, and it may well be that many have been waiting for markets to recover somewhat from their lows before making the switch to avoid accusations of being panicked into selling at the bottom. …

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