Pension schemes experienced their highest volatility levels since June 2001 last month, according to Aon Consulting.
Aon equals the volatility to average daily swings of more than £10bn, which it says poses problems for short-term company reporting and those schemes looking to settle liabilities in the near future.
The Aon200 Index, which tracks the surplus or deficit in the 200 largest UK privately-sponsored pension schemes, fell from a £2bn deficit at the end of December 2007 to a £10 deficit at the end of last month, with only 40% of schemes in surplus.
The consultancy attributes the volatility to high levels of equity investment during an already volatile period. It says some schemes could have diversified equity exposure into other growth assets to avoid this.
Aon says schemes could have halved the average daily swings had they switched equity investments into diversified growth funds, which it says performed particularly well in January. It says schemes would have ended the month in £6bn surplus rather than a £12bn deficit.
Marcus Hurd, senior consultant and actuary at Aon Consulting, says: “Pension schemes are long-term investors, but many cannot afford to ignore short-term pressures, which can affect business plans and destroy confidence.
“Diversified growth is an opportunity neglected by many pension schemes, but one that still exists and is now available to most schemes. Many companies and trustees accept that equity investment is volatile in the quest for higher returns in the long run.”
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