FT: UK pension funds call for big rise in long-dated gilts

December 2 2009


A big rise in borrowing through index-linked and long-dated government bonds would be the most effective action the Treasury could take to help hard-pressed defined benefit pension schemes, according to the industry's trade body.

The National Association of Pension Funds said that 80% of its members saw an increase in the issuance of long-dated and inflation-linked gilts as the government measure that would most help its members.

Pensions experts say protecting schemes against adverse market moves requires the purchase of long-dated and index-linked gilts, since these move in line with pension fund -liabilities.

Already, pension schemes are moving out of riskier assets such as equities into bonds, which rise in value when interest rates - and therefore scheme liabilities - fall. Since 2006, the average allocation to equities has fallen to 44.2 per cent of funds, down from 59.3 per cent in 2006. The average allocation to bonds has risen to 37.9 per cent from 29.9 per cent over the same period.

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