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
  • The Actuary Issues
  • January 2013
01

Weak returns not RPI the biggest problem for DB pensions, says Fitch

Open-access content Tuesday 15th January 2013 — updated 5.13pm, Wednesday 29th April 2020

Weak long-term returns on assets are the ‘key fundamental’ problem for companies with defined benefit pension schemes, Fitch said yesterday.

2

The low growth environment and 'ultra-loose' monetary policy mean almost all assets are now offering very low returns, with some of the safest, such as UK gilts and highly rated corporate bonds, now offering below-inflation returns.

'This is a long way from the steadily rising asset base companies would have expected. Companies will have to make up the difference,' Fitch explained in a note.

Last week, the National Statistician decided against changing the way the Retail Prices Index is calculated. Fitch noted that while this could have reduced future pension payouts - and therefore liabilities - asset returns were a bigger influence on how much additional money companies have to plough into their pension schemes.

Low returns would matter little if they were short-term and followed by a rapid correction, but Fitch said the chances of this happening were 'limited'.

Pressure from regulators and to use certain accounting methods has led to schemes investing in safer assets - in particular bonds - rather than equities, which has further diminished the potential for a 'swift recovering' in asset returns.

'Switching to bonds after a stock market crash in 2008 has effectively locked in losses for many companies, and unlike equities, bonds are likely to lose value as the economy recovers and interest rates rise,' Fitch explained.

'While open to debate, there is typically a correlation between risk and return in asset allocation, and a focus on safety is likely to reduce returns in the long run.'

The agency noted that the most obvious manifestation of these low returns was in pension valuations, with deficits rising and pressure growing on companies to close their funding gaps.

But, it said that for the 'vast majority' of UK companies the problems were 'manageable'. 'A combination of scheme closures, novel approaches to scheme funding, and healthy performance by many, means that pensions are not a game changer,' it added.

This article appeared in our January 2013 issue of The Actuary.
Click here to view this issue
Filed in
01
Topics
Investment

You might also like...

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

Latest Jobs

Calling all GI Actuaries looking to move into contracting

England, London
£700 - £1000 per day
Reference
146169

A chance to gain capital modelling experience.

London, England
£70000 - £110000 per annum
Reference
146168

Capital Contractor GI

England, London
£700 - £1000 per day
Reference
146166
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