Roger Urwin of Watson Wyatt says, as far as I can tell, that the shortening maturity of pension fund liabilities caused by the closure of final salary schemes, itself caused by a combination of rising bond markets and falling equity markets will cause a divestment from equities mostly infavour of the bond market! The reasoning makes sense and Roger Urwin has the advantage of being one of the people that makes it happen.
Roger Urwin, global head of investment consulting at Watson Wyatt, whose clients include half of the top FTSE 100 companies, estimates that most of the biggest corporate funds will cut their equity holdings to around 20 per cent of their overall investment portfolio - down from about 60-70 per cent at the moment.This substantial shift, undertaken over the next decade or so, has been prompted by companies' decision to close their final salary retirement schemes to new entrants in response to the ongoing pensions crisis.
The article points out that defined contribution schemes replacing the final salary schemes will not necessarily change their asset allocation and will pick up the liabilities of the younger people missing from the closed final salary schemes. With luck that should offset the effects somewhat.
Even so contributions to DC schemes are blow what they would need to be to match equivalent final salary liabilities and according to Bill Gross of Pimco, another man capable of fulfilling his own prophecies, US investors are increasingly switching bond investment to, among others, UK bonds it suggests a powerful force one way in the market. On the other hand is the UK immune form the pressures that Gross identifies working in the US? Certainly not all of them. How to tell how much this is in the market at the moment.
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