New ONS pensions data (by country) – “UK pensions may catch hypothermia if America sneezes” – reaction

by | Jun 23, 2022

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David Robinson, chartered wealth manager at London-based Wildcat Law: “All hail the tracker. 75% of equity investments being held in overseas stocks is reflective of the extensive use of tracker funds by the pension industry. US equities form the majority of any global equities tracker, for example the MSCI World Index was 68% invested in US Equities during May. Why is this? Well when it comes to equities the US literally does “supersize me”, with Apple, Microsoft, Amazon, Alphabet and Tesla to name but a few.

“However, rather than ‘when America sneezes, the world catches a cold’, the risk is that UK pensions may in fact catch hypothermia with their current rates of exposure. It’s perhaps just as well the US is not suffering from a cost of living crisis, too.

“An interesting side story is the ongoing decline of DB membership as members transfer out or die versus the growth of DC schemes. Private sector employee and employer contributions reflect the rise in employment levels, but could there be a storm brewing? Contribution growth could rapidly reverse if the cost of living crisis results in redundancies. We may also see the tightening of household budgets result in members choosing to reduce their contributions or even opt out.”

 

Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton: “Whilst it’s helpful to have this information, the actual results aren’t too surprising. Defined Benefits (DB) schemes would be expected to have a high long-term debt holding as they use lower-risk assets to balance their liabilities. Consequently, this is reflected in the figures. Arguably one of the more interesting figures is that schemes only have 54% of overseas equities in US equities. This is actually quite an underweight position given that the USA represents 68% of the MSCI World Index.”

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