Editorial: Time to cash out?
The strengthening equity market, mixed with higher gilt yields, is giving pension scheme investors a tough decision on whether and when to derisk.
As we went to press on Friday, the FTSE 100 was continuing its steady march upwards. Earlier that week the New York-based S&P 500 index had reached record highs.
Should pension schemes expect further gains, and should they believe the predictions by their asset managers, laid out last week in these pages, that gilt yields are going to gain another 40 basis points by the end of the year?
“One wouldn’t want to overdo waiting for those higher rates,” was the comment of Aon Hewitt’s Tapan Datta at the time, though he suspected there was still some “juice” left in the markets for pension schemes wanting to squeeze.
Schemes that have set automatic or semi-automatic derisking triggers may be spared the burden of second-guessing themselves, depending on how those triggers have been set up – but those with manual triggers may have pause for thought.
My deputy editor Lisa Botter remarked last week that derisking was probably the new year’s resolution of UK pension schemes. It will be fascinating to see whether it is one they can keep to, and resist the temptation to gorge themselves on higher-return strategies.
If the funds that reaped the benefits of the turbulence since the financial crisis start falling behind, and if, crucially, the volatility that has characterised equity markets reduces, schemes will have to decide whether they are getting enough in return for giving up the upside.
For those that have stuck with equities, they will have to decide when they want to get off the ride.
A thank-you
On a side note, a big thanks to those that came to the FT last week for our launch event.
We discussed the changes we have made over the past year, from our fresh case study-led editorial approach to our brand new responsive design website and redesigned magazine.
We also showed the video currently hosted on this site explaining the wider reasons for the relaunch. Exciting times ahead.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.