Standard Life moves company pension from equities to bonds as FTSE 100 schemes raise allocation by £20bn

New research by JLT Employee Benefits shows the average bond allocation rose to 61 per cent in the year to 31 December 2015, which is equivalent to around £20bn.

The development marks a significant increase compared to six years ago when average bond allocation for the FTSE 100 was just 50 per cent of assets.

Edinburgh-based Standard Life made the biggest move to bonds, increasing its allocation by 28 per cent in just one year to 73 per cent of total assets.

It is followed by Provident Financial and Barratt Developments which each saw their schemes’ fixed income allocation rise 24 per cent.

Aviva and Prudential each continued to hold 87 per cent of their company pension funds in equities, according to JLT.

It found 62 of the 100 companies had more than 50 per cent of their schemes in bonds, with seven companies switching more than 10 per cent of their fund to bonds during the year.

The average allocation to bonds was now 61 per cent, up from 50 per cent in 2010.

Charles Cowling, director at JLT Employee Benefits, said: “It is promising to see the change in mindset of trustees. By demonstrating greater prudence, it will inspire more confidence from shareholders and members.”

However, while praising trustees for taking greater prudence in risk management by de-risking away from equities towards bond, he also pointed out that schemes also need cash contributions to plug troublesome deficits.

BT led the way with a deficit contribution of £0.8bn net of ongoing costs but 51 other companies also reported significant deficit funding contributions in their most recent annual report and accounts.

“If there can be some momentum gained via the markets, that does not reverse when interest rates eventually rise, there could be some scope to turn things around,” Mr Cowling added. “But there is a long way to go before the very significant risks still being run in pension schemes will cease to worry shareholders and pension scheme members.”

While JLT director Charles Cowling praised trustees for taking greater prudence in risk management by de-risking away from equities towards bonds, he pointed out that schemes also need cash contributions to plug troublesome deficits.

Despite many FTSE 100 schemes having significantly de-risked over the past few years, a number still have a very high exposure to equities.

BT led the way with a deficit contribution of £0.8bn net of ongoing costs but 51 other companies also reported significant deficit funding contributions in their most recent annual report and accounts.

“If there can be some momentum gained via the markets, that does not reverse when interest rates eventually rise, there could be some scope to turn things around,” he added. “But there is a long way to go before the very significant risks still being run in pension schemes will cease to worry shareholders and pension scheme members.”