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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension funds would suffer in event of Euro crisis

The firm believes that an unfolding economic crisis is a very real risk, and UK pension funds should have measures in place as provision.

“Funding levels could fall by 20% or more if fears of a full blown Eurozone crisis continue to grow," warns Keith Guthrie, chief investment officer.

"Most UK pension funds remain heavily invested in equities and only hedge a small proportion of liability risks.

“Already, in June and July, liability values have risen significantly and equities have fallen, reducing most schemes’ funding levels by 5% or more. A full blown crisis could significantly reduce the value of pension fund assets and potentially lead to a further increase in liability values.”

Richard Dowell, head of clients for Cardano UK, added: "Pension funds need increasingly to think about safety first, including devising all weather portfolios, rather than assuming a return to historic economic growth rates and strong asset performance.

"Entering into short-term derivative-based protection strategies at a time of market stress is usually quite expensive and no substitute for a robust, long-term portfolio construction approach."