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January 24, 2008

Pension funds ride out stock market volatility

by Gill Montia

Story link: Pension funds ride out stock market volatility

According to Mercer, the financial consultancy, the value of pension schemes has risen in the FTSE 100, despite recent stock market volatility.

On Tuesday of this week, the effect of market movements on the UK’s largest company pension schemes left them showing an aggregate deficit of £13 billion, as compared with a deficit of £25 billion on Monday 21 January.

Mercer points out that company pension funds invest for the long-term and the current market volatility should be of limited concern.

Tim Keogh, a worldwide partner at the firm, comments on defined benefit schemes as follows: “Many of the UK’s largest companies have planned for the contingency of a possible market downturn and either taken steps to derisk their schemes or concluded they can tolerate the risks …. in conditions like these, the pension’s regulatory system is very flexible and knee-jerk reactions are neither required nor desirable. So the message should be ‘don’t panic’.”

However, he warns: “Longer-term, if everything stabilises at a lower level more funding will be needed over time” and reminds pension holders who have not reviewed their investment options recently that “this is a timely reminder to do so and to make sure they still fit in with their long-term plans”.

Adding: “Ultimately they need to be comfortable that they can cope with further falls if these were to happen, particularly if they are approaching retirement. This could mean moving to asset classes with more stable returns but with a lower potential for high growth.”

 

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