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Pension Fund Indicators 2016 from UBS Asset Management reveals latest investment trends

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  • Need for schemes to proactively consider a positive near term cash flow whilst embarking on a de-risking programme
  • Current reforms will lead to improvements in the way local authority funds approach ESG and SRI considerations
  • The short-term response to the vote to leave the EU will likely be intense while the longer term implications will take years to play out
  • In 2015 the overall weighting to bonds decreased slightly to 37%, compared to a weighting of 38% in 2014

London, 1 August 2016 – UBS Asset Management announces the publication of Pension Fund Indicators 2016 * (“PFI”), its annual industry-leading study of pension schemes, their asset allocations and investment trends. This year’s report covers the current thinking in UK pensions, an overview of international pension markets, the economic backdrop, a review of equities, bonds, real estate, infrastructure and alternative sources of return (hedge funds, private equity, currency, gold, commodities and art).

The first chapter highlights a number of developments in UK pensions including:

  • The pooling of assets of 89 Local Government Pension Scheme funds in England and Wales into a small number of ‘British Wealth Funds’, each with a minimum of £25bn.The sheer scale of the plan to consolidate these assets means it will be a milestone event.
  • MIFID II, taking effect from 3 January 2018, will introduce changes that will have a large impact on the EU’s financial markets. Strengthening protection for clients is a key focus, but there are also stricter organisational requirements for product design and distribution, product intervention powers and the disclosure of costs and charges.
  • Generating sufficient income and positive cash flow whilst pension schemes de-risk presents a significant investment and governance challenge. Finding solutions which not only meet these challenges but also ensure pension schemes are able to meet their ongoing growth and longer term liability requirements is critical to the achievement of full funding. This chapter explores a full range of options for trustees to consider to meet their evolving objectives.

For the first time, PFI includes a section dedicated to ESG. Dr. Dinah A. Koehler, Head of Sustainability Research in the UBS Sustainable Investors Team, writes about impact investing and how to measure social impact investing in public equities. This meets a growing demand from institutional and private wealth clients for a greater understanding of their investment creates a measurable impact on the world in which we live.

This year’s guest chapter by Guy Sears of the Investment Association analyses how the industry is responding to the challenges it faces by providing innovative solutions for investors during a continuously changing regulatory landscape.

Key statistics from this year's publication include:

  • Total occupational pension scheme membership stood at 30.4 million in 2014, an increase of 2.5 million in 2013. This includes active members, pensions in payment (pensioners) and preserved pension entitlements (deferred pensioners).
  • Over the last ten years, DC assets have grown at a rate of 7.1% p.a. while DB assets have grown at a slower rate of 3.4% p.a. with a split of 68:32 for DB/DC assets in the UK at the end of 2015.
  • The markets with a bigger proportion of DC assets relative to DB in 2015 are Australia with 87% and the US with 58%.
  • The average pension fund return over the 53-year period was 10.1% p.a. which is 4.4% p.a. ahead of retail price inflation and 2.9% p.a. above wage inflation.
  • UK equities have produced a long-term return of 11.6% p.a., 5.9% p.a. ahead of retail prices and 5.8% p.a. ahead of wages and salaries over the period 1963 to 2015.
  • Asset allocation of the average pension fund has seen the overall weighting to bonds decreased slightly to 37% in 2015 vs. 38% in 2014.This still remains high relative to previous periods: the last time that bond exposure was in excess of 40% was almost 50 years ago in 1967, when it stood at 45%.
  • The gradual shift towards DC schemes has picked up pace and is likely to continue. The latest data shows only 9% of private sector DB schemes were open to new joiners in 2015, compared to 12% in 2013.
  • Denmark, Japan and the Netherlands continue to have high allocations to bonds. Denmark stands out with a 60% allocation to bonds and 16% in equities, reflecting the nation’s prudent approach to pension management.
  • In Japan, where allocations to bonds totalled 40% in 2015, it is expected that pension funds’ exposure to bonds will face downward pressure over the coming years, as Japan’s government encourages a move to equities / riskier instruments in an attempt to pull Japan out of its period of deflation.

* Pension Fund Indicators 2016 can be downloaded here: https://www.ubs.com/content/dam/static/epaper/index.html?id=1b70a129

Notes to Editors

Media contact:

For further information or to request a copy of Pension Fund Indicators 2016, please contact Marina Fraser Harris and Tom Climie at Quill PR on +44 (0)20 7466 5055/5052 and marina@quillpr.com / tom@quillpr.com

UBS Asset Management

Asset Management is a large-scale asset manager with a presence in 22 countries. It offers investment capabilities and investment styles across all major traditional and alternative asset classes to institutions, wholesale intermediaries and wealth management clients around the world. It is a leading fund house in Europe, the largest mutual fund manager in Switzerland, the third-largest international asset manager in Asia, the second largest fund of hedge funds manager and one of the largest real estate investment managers in the world.

UBS

UBS provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as private clients in Switzerland. The operational structure of the Group is comprised of our Corporate Center and five business divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and the Investment Bank. UBS's strategy builds on the strengths of all of its businesses and focuses its efforts on areas in which it excels, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which it operates, in order to generate attractive and sustainable returns for its shareholders. All of its businesses are capital-efficient and benefit from a strong competitive position in their targeted markets.

UBS is present in all major financial centers worldwide. It has offices in 54 countries, with about 34% of its employees working in the Americas, 35% in Switzerland, 18% in the rest of Europe, the Middle East and Africa and 13% in Asia Pacific. UBS Group AG employs approximately 60,000 people around the world. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).