In Britain, a Dichotomy in Pension Fund Investment Performance

(September 10, 2009) – The best are getting better and the worst worse, according to recent figures on United Kingdom (UK) defined benefit (DB) pension scheme funding levels.

According to the Pension Protection Fund (PPF), August brought with it, on average, worsening funding positions for the 7,400 DB schemes tracked by the PPF with its 7800 Index. At the end of the final month of summer, the DB schemes covered had a total deficit of  £173.2 billion, compared to a £158.1 billion deficit seen at the end of July.

Interestingly, August saw a spread between those pensions running a deficit and those running a surplus. According to PPF, the entirety of deficits by schemes running deficit increased—going to £194.6 billion from £179 billion—while the total surplus of funds running a surplus increased from £20.9 billion to £21.4 billion.

This announcement, highlighting a dichotomy of performance by UK pension funds, comes on the heels of an equally negative report regarding de-risking at British pensions. According to consulting firm Hymans Robertson, half of British defined benefit pension schemes have failed to design a long-term strategy for risk reduction, despite 80% believing there is a need to do so.

Furthermore, while 75% of those surveyed had reduced investment risks at the stock market’s 2007 highs, risk aversion seems to prevail in the current environment, with only 45% of funds claiming that they have procedures in place to lock in returns from a rebounding equities market.