scholarly journals The cult of the equity for pension funds: should it get the boot?

2005 ◽  
Vol 4 (1) ◽  
pp. 57-85 ◽  
Author(s):  
CHARLES SUTCLIFFE
Keyword(s):  
Asset Allocation ◽  
Risk Sharing ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Turn Of The Millennium ◽  
Equity Prices ◽  
Risk Return ◽  
History Of ◽  
Complete Rejection ◽  
The Uk

Over the last half century UK defined benefit pension schemes have followed the cult of the equity by investing a large proportion of their assets in equities. However, since the turn of the millennium this cult has faced two serious challenges – the halving of equity prices, and the complete rejection of equity investment by the Boots pension scheme in 2001. This paper summarises the history of the cult in the UK and the arguments advanced at the time to support its adoption. It then presents the case for the cult (excluding taxation, risk sharing and default insurance). This is followed by a detailed consideration of the validity of this case, including an examination of the relevant empirical evidence. It is concluded that, in the absence of taxation, risk sharing and default insurance, the asset allocation is indeterminate; and depends on the risk-return preferences adopted by the trustees.

scholarly journals Pension Scheme Asset Allocation with Taxation Arbitrage, Risk Sharing and Default Insurance

2004 ◽  
Vol 10 (5) ◽  
pp. 1111-1131 ◽  
Author(s):  
C. M. S. Sutcliffe
Keyword(s):  
Private Sector ◽  
Asset Allocation ◽  
Risk Sharing ◽  
Pension Funds ◽  
The Other ◽  
Pension Scheme ◽  
Economic Factors ◽  
Risk Return ◽  
Pension Schemes ◽  
Arbitrage Risk

ABSTRACTThe asset allocation is a crucial decision for pension funds, and this paper analyses the economic factors which determine this choice. The analysis proceeds on the basis that, in the absence of taxation, risk sharing and default insurance, the asset allocation between equities and bonds is indeterminate and governed by the risk/return preferences of the trustees and the employer. If the employing company and its shareholders are subject to taxation, there is a tax advantage in a largely bond allocation. Risk sharing between the employer and the employees often means that one group favours a high equity allocation, while the other favours a low equity allocation. Underpriced default insurance creates an incentive for a high equity allocation. When taxation, risk sharing and underpriced default insurance are all present, it is concluded that the appropriate asset allocation varies with the circumstances of the scheme; but that a high equity allocation is probably inappropriate for many private sector pension schemes.

Meeting defined benefit pension obligations: measurement, risk and flight paths

2012 ◽  
Vol 18 (2) ◽  
pp. 271-307 ◽  
Author(s):  
J. Hatchett ◽  
M. Hurd ◽  
I. Clacher
Keyword(s):  
Decision Making ◽  
Flight Path ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Common Basis ◽  
Path Structure ◽  
The Uk ◽  
Common Target ◽  
Over Time

AbstractThe UK defined benefit pension scheme landscape has changed dramatically over the last few decades. During this period of change, conflicting views regarding the measurement of both assets and liabilities has made communication challenging. In turn, this has led to an under appreciation of risk and often suboptimal decision making. This paper seeks to draw together a variety of contrasting views to provide a coherent framework for stakeholders to meet pension scheme obligations over time.The proposed framework encourages agreement between both scheme sponsors and trustees towards a common target through a well articulated plan or “flight path”. In addition, the proposed flight path structure provides a common basis underpinning the measurement of both pension obligations and the risks inherent in any plan to meet those obligations.

Causes of defined benefit pension scheme funding ratio volatility and average contribution rates

2011 ◽  
Vol 6 (1) ◽  
pp. 76-102 ◽  
Author(s):  
Adam Butt
Keyword(s):  
Asset Allocation ◽  
Demographic Factors ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Equity Investment ◽  
Investment Returns ◽  
Typical Scheme ◽  
Mortality Improvement ◽  
The Impact ◽  
Average Contribution

AbstractSimulations of a model pension scheme are run with stochastic economic and demographic factors, with an aim to investigate the impact of these factors on movements in funding ratio and average contribution rates. These impacts are analysed by running regressions of movements in funding ratio and average contribution rates against the economic and demographic factors. It is found that, for a typical scheme closed to new entrants and a balanced asset allocation including equity investment, the mismatch between discount rate movements and investment returns is by far the biggest predictor of funding ratio movements, with average contribution rates affected more by events in a few individual years rather than averaged over an entire simulation. Where the scheme invests to cash-flow match liabilities, mortality improvement becomes the most significant predictor of funding ratio movements, although mortality improvement still has little impact on average contribution rates.

Financial Management of the UK Pension Protection Fund

2013 ◽  
Vol 18 (2) ◽  
pp. 345-393 ◽  
Author(s):  
J-P. Charmaille ◽  
M.G. Clarke ◽  
J. Harding ◽  
C. Hildebrand ◽  
I.W. Mckinlay ◽  
...  
Keyword(s):  
Risk Management ◽  
Financial Management ◽  
Enterprise Risk Management ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Corporate Sponsor ◽  
Stakeholder Groups ◽  
Pension Schemes ◽  
Enterprise Risk ◽  
The Uk

AbstractThe UK Pension Protection Fund (PPF) was established in April 2005 to protect the pensions of members of UK private sector defined benefit pension schemes which have insufficient assets and whose corporate sponsor fails. The Fund takes over the pension scheme assets and assumes responsibility for the payment of compensation to the former members of the scheme. The PPF is funded by a levy on the population of eligible schemes. This paper discusses the application of Enterprise Risk Management principles and techniques to the unique situation of the PPF. The elements of the financial management of the Fund have been developed by reference to practice within proprietary insurance institutions and within pension funds. The paper will be of interest and, we hope, of some value to students, researchers and analysts and also to the PPF's own stakeholder groups that have a stake in an effective pension protection regime.

scholarly journals Who wins? Evaluating the impact of UK public sector pension scheme reforms

2016 ◽  
Vol 237 ◽  
pp. R38-R46 ◽  
Author(s):  
Alexander M. Danzer ◽  
Peter Dolton ◽  
Chiara Rosazza Bondibene
Keyword(s):  
Public Sector ◽  
Local Government ◽  
Civil Service ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Level Of Education ◽  
Fire Services ◽  
Pension Schemes ◽  
The Uk ◽  
The Impact

Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10–20 per cent. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes lose between 3 per cent and 5 per cent. This is in sharp contrast with the Police and Fire services who have lost around 40 per cent irrespective of their education.

OPTIMAL TIME-CONSISTENT PORTFOLIO AND CONTRIBUTION SELECTION FOR DEFINED BENEFIT PENSION SCHEMES UNDER MEAN–VARIANCE CRITERION

2014 ◽  
Vol 56 (1) ◽  
pp. 66-90 ◽  
Author(s):  
XIAOQING LIANG ◽  
LIHUA BAI ◽  
JUNYI GUO
Keyword(s):  
Risk Aversion ◽  
Asset Allocation ◽  
Optimization Problems ◽  
Realistic Model ◽  
Optimal Time ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Special Cases ◽  
Hamilton Jacobi Bellman ◽  
Mean Variance

AbstractWe investigate two mean–variance optimization problems for a single cohort of workers in an accumulation phase of a defined benefit pension scheme. Since the mortality intensity evolves as a general Markov diffusion process, the liability is random. The fund manager aims to cover this uncertain liability via controlling the asset allocation strategy and the contribution rate. In order to have a more realistic model, we study the case when the risk aversion depends dynamically on current wealth. By solving an extended Hamilton–Jacobi–Bellman system, we obtain analytical solutions for the equilibrium strategies and value function which depend on both current wealth and mortality intensity. Moreover, results for the constant risk aversion are presented as special cases of our models.

The UK North Sea: a history of oil and gas

2020 ◽  
Vol 52 (1) ◽  
pp. 19-31 ◽  
Author(s):  
Lucy King
Keyword(s):  
Continuous Improvement ◽  
North Sea ◽  
Oil And Gas ◽  
Turn Of The Millennium ◽  
The North ◽  
The World ◽  
History Of ◽  
The North Sea ◽  
The Uk ◽  
Partial Reversal

AbstractWith a history spanning over 50 years, the UK Continental Shelf (UKCS) is one of the most explored and mature basins in the world. Over 44 Bbbl of reserves have been recovered from over 450 fields across the UKCS, enabled by continuous improvement in seismic, drilling and development technologies. Starting in 1965 with BP's West Sole discovery in the Southern Gas Basin, every sector of the UKCS has since opened up. But it is not just the discoveries that have characterized this ultra-mature region. It has weathered a turbulent history of oil prices, fiscal changes, an ever-changing corporate environment and the industry's worst offshore disaster, which serves as a reminder of the uncompromising conditions of the North Sea.Production peaked at the turn of the millennium, and it is only since 2013 that there has been a partial reversal of the declining trend. With discoveries getting scarcer and smaller, maintaining the trend will not be easy, especially with the number of companies exiting the region for more prospective global opportunities on the rise. However, with an estimated 10–20 Bbbl yet to find in the basin, there is still a lot to play for in the coming years.

Pension Scheme Trustees and Regulators

2017 ◽  
Author(s):  
Christopher Mallon ◽  
Shai Y. Waisman ◽  
Ray C. Schrock
Keyword(s):  
Safety Net ◽  
Pension Plans ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Substantial Role ◽  
The Us ◽  
Regulatory Bodies ◽  
The Uk ◽  
Defined Benefit Pension Plans

Superficially, the UK and the US pensions regime when companies are restructuring look similar. Both countries have a significant number of defined benefit pension plans, both have a regulatory safety net for those plans and both have active regulatory bodies to patrol that safety net that can play a substantial role in the restructuring of the sponsoring employer. Under both regimes, substantial debts can be triggered on the employers.

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