Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • Sections
  • News

UK pensions need 'once-a-century' equity performance to close funding gaps

Open-access content Wednesday 16th September 2020
UK pensions need 'once-a-century' equity performance to close funding gaps

UK defined benefit (DB) pension schemes are overly-dependent on improbable equity returns, and need a “once-a-century” performance to close funding gaps by 2030, Willis Towers Watson (WTW) has warned.

WTW said that the average underfunded DB scheme requires equities to return 9% above cash rates on an annual basis for the whole of the next decade to avoid significant deficits continuing into the 2030s.

However, UK equities have averaged just 3.1% per annum above cash rates since comparable records started in 1704, and have only matched the required 9% rate in one of 20 rolling decades.

“Underfunded DB schemes are effectively counting on a once-a-century equity performance if they’re to wipe out deficits this decade,” said Katie Sims, head of multi-asset growth solutions at WTW.

“Simply putting all your eggs in one basket and hoping for unlikely events will not be enough to solve the funding gap.”

The analysis is based on the PPF7800 index funding ratios of underfunded UK DB pension schemes as at 31 July 2020

However, the research also highlights how other international comparators suggest low odds for full funding by 2030.

After analysing data for US equities since 1946, WTW  found that average 10-year returns still amount to just 6.2% per annum relative to cash, and a 9% rate has only been achieved in a quarter of rolling decades.

Sims said that pension trustees need to reimagine asset allocations, and should consider investing in untraditional projects.

“A much greater portion of portfolios need to be invested in practical real-world projects that are actively building the economy of the future,” she continued.

“Listed equity certainly has a place in the investment mix, but schemes need to think beyond traditional allocations in order to meet the returns they need.”

 

Image credit: iStock

Author: Chris Seekings

Also filed in
News
Topics
Investment
Pensions

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Pensions Actuarial Analyst

London, Midlands, Scotland
£Market Competitive
Reference
143788

Senior Manager/Director level roles - Life insurance

Stirling
Generous salary with excellent bonus and benefits
Reference
143787

Reinsurance Pricing Actuary

London (Central)
£60-90K depending on experience
Reference
143786
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ