Some leading fund managers have stated that pension funds are currently holding more capital in bonds than equities since the 1950’s. This switch in asset classes began in 2002, when pension funds suffered large losses due to the dot com crash and corporate problems in the US.
The reason for this is that bonds produce a regular stream of income that can be used to supplement people’s pension payments. They have also been used to help pension funds be less volatile than if the majority of capital was held within equities.
The pensions and retirement planning regulator, which collates data on defined benefit schemes, stated that UK funds hold 43.2% in gilts and fixed interest compared with 38.5% in equities. This is the highest allocation of gilts and fixed interest since the pension’s regulator started compiling data in 2006.
Government Bond yields have dropped to record lows, which has effectively pushed up deficits.
Schemes for pensions, annuities and retirement planning are particularly keen on taking inflation protected gilts to meet the ever punishing regulation on pension schemes to hold less risky assets. This surely can’t continue and at some point when the volatility in the markets becomes more manageable and the problems we currently have with the some countries and there spiralling debt problems, equities may have resurgence. When this could be is an unknown factor.