Stock market falls - NAPF comments on pension funds impact

The National Association of Pension Funds (NAPF) has today reiterated that pension funds are long-term investors and short-term falls in stock markets will not have an enduring effect on workplace pensions.

In addition, pension funds who have defined benefit (salary related) and/or defined contribution (money purchase) schemes, have over time been taking steps to reduce their exposure to volatile equities.

NAPF Policy Director, Nigel Peaple, said: “As pension funds are long-term investors, there is no reason to believe short-term stock market falls will have a significant impact on workplace pensions.

“In any case, pension funds invest in a range of assets, so to some extent, they are cushioned from such movements.

“Recent volatility will also not affect the ability of schemes to pay the pensions due to their members.”

Equity Investments Trends – Defined Benefit (DB)

The recently published NAPF Annual Survey of UK pension schemes revealed that the trend away from investing in equities continued in 2007 as further diversification of DB pension assets took place. The survey’s findings included:-

55% of DB assets in the sample are invested in equities, down from almost 60% in 2006 and 61% in 2005.

47% of respondents had reduced the proportion of their strategic asset allocation devoted to equities in the past year. 34% had increased the proportion devoted to fixed interest investments.

Lifestyle Funds – Defined Contribution (DC)

The Annual Survey also showed that 92% of DC schemes now offer a lifestyle fund which progressively shifts members’ investments towards less risky asset classes as they approach retirement. This is an increase from 77% in 2005.

Of those 84% of DC schemes with a default fund, 79% of these are lifestyle funds.