News Column

Pension black hole closed by surge in stock markets

February 7, 2014


BOOMING stock markets helped close the black hole in FTSE 350 corporate pension plans last year, allowing schemes to cover the costs of their pensions for the first time in years.

Funding levels in aggregate rose to 103 per cent for the year ending December 2013, up from 93 per cent a year earlier.

The rise was driven by a rally in equity markets, which helped boost the value of pension scheme assets by 9.5 per cent while rising rates helped add 5.6 per cent to funding levels, according to the figures from Goldman Sachs Asset Management (GSAM).

"2013 was a good year for UK pension funds. However, there is absolutely no chance to relax. There''s a huge amount of work for UK pension schemes to do," GSAM head of global portfolio solutions international Kathryn Koch said.

"There's going to be investment opportunities due to changes in regulatory structures, which means pensions schemes can take advantage of them by putting capital to work, if they can handle the liquidity profile of these investments."

Companies helped to close the funding gap last year by contributing a further 2.1 per cent to the funding level through cash contributions.

However, most FTSE 350 firms have been rolling back their pension provision by closing schemes.

Just 25 companies in the FTSE 350 currently have a defined benefit scheme open to new entrants, equivalent to seven per cent of the index. Two companies in the index closed their schemes to new entrants last year, while seven froze schemes to future accrual, the GSAM figures reveal. However, there was a warning pension trustees were not taking advantage of stock market gains, with schemes under 500m in size failing to move into fixed income assets quick enough.

The research found one company had a funding level of 120 per cent - but had its entire portfolio in stocks and none in fixed income.

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Source: City A.M. (UK)

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