UK pension funds recorded average returns of 4.3% last year the third consecutive year they have posted a positive return, according to figures published by BNY Mellon yesterday.
30 MAR 2012 | THE ACTUARY NEWSDESK: NICK MANN
The fixed income sector provided funds with particularly strong returns - with UK gilts providing a median return of 24.8% and UK index-linked gilts returning 23.3%.
But, BNY Mellon said overseas equity returns were predominantly negative for funds, ranging from -18.4% for emerging market equities to -13.5% for European ex-UK equities. US equities made 'small gains' - recording 0.4% over the year as a whole.
As an average, overseas equities returned -8.8% overall, while Uk equities returned -3.4%. Alan Wilcock, performance and risk analytics manager at BNY Mellon Asset Servicing, said UK pension funds were particularly affected by instability in equity markets in Q3 of 2011 which was partly the result of fears over the spread of the Greek debt crisis.
'The sharp fall in stock prices during August was also at the same time the United States government's credit rating was being downgraded for the first time,' he added. Q3 saw the median fund return -13.6% for UK equities and -16.4% for overseas equities - the lowest quarterly median returns recorded by BNY Mellon for equities since the stock market downturn in Q3 2022.
Mr Wilcock explained that the stronger returns for gilts were influenced by the £75bn of quantitative easing instigated by the Bank of England in October 2011.
But, he added, 'whilst the impact of falling interest rates led to the value of these assets increasing, it will have no doubt added to the rising liabilities of UK pension funds.'
'During 2011 pension funds experienced a wide range of individual results, depending on the extent to which they were following liability-driven investment strategies. The top performing funds achieving returns above 12.4% and the bottom performing funds achieved returns below -4.2%,' he added.
BNY Mellon also highlighted a continued shift in UK pension fund investments away from equities to fixed income. While equities are still the biggest single component of funds' portfolios, its research shows allocations to equities have fallen from 72.4% to 45.3% over the past 10 years.